EUROPEAN COMMISSION

Brussels, 17.12.2015

SWD(2015) 274 final/2

Corrigendum

Ajout des annexes. Annule et remplace le document
SWD(2015) 274 final du 9 décembre 2015.

COMMISSION STAFF WORKING DOCUMENT

IMPACT ASSESSMENT

Accompanying the document

Proposals for Directives of the European Parliament and of the Council

(1) on certain aspects concerning contracts for the supply of digital content

and

(2) on certain aspects concerning contracts for the online and other distance sales of goods

{COM(2015) 634 final}
{COM(2015) 635 final}
{SWD(2015) 275 final}

TABLE OF CONTENTS

1What is the problem and why is it a problem

1.1Introduction

1.2Business-to-consumer (B2C) contracts

1.2.1Existing legal framework

1.2.2Problem 1: Differences in consumer contract law rules hinder traders from selling digital content and goods online cross-border

1.2.3Problem 2: Consumers are not confident when buying digital content and goods online cross-border

1.2.4How would the problem evolve in the absence of EU action: No policy change/baseline scenario

1.3Business to Business (B2B) contracts

1.3.1Existing EU legal framework for B2B transactions

1.3.2Contract law rules do not seem to be a major hindrance for cross-border B2B online transactions

1.3.3Specific issues related to digital content in the B2B context

2Why does the EU need to act?

3What should be achieved?

4What are the various options to achieve the objectives?

4.1Scope: B2C transactions

4.2The options

Option 1 - Setting up targeted, fully harmonised rules for the supply of digital content and targeted, fully harmonised rules for online sales of goods

Option 2 - Setting up targeted, fully harmonised rules for the supply of digital content / Application of the trader's law combined with the existing harmonised rules on goods

Option 3 - Setting up targeted, fully harmonised rules for the supply of digital content / No policy change for goods

Option 4 – Minimum harmonisation rules for the supply of digital content / No policy change for goods

Option 5 – A voluntary European model contract combined with an EU trust mark

4.3Discarded options

5What are the impacts of the different policy options and who will be affected?

5.1No policy change/baseline scenario: See Section 1.2.4

5.2Option 1: Setting up targeted, fully harmonised rules for the supply of digital content and targeted, fully harmonised rules on online sales of goods

5.3Option 2: Setting up targeted, fully harmonised rules for the supply of digital content – Application of the trader's law combined with the existing harmonised rules on goods

5.4Option 3: Setting up targeted, fully harmonised rules for the supply of digital content – No policy change for goods

5.5Option 4: A minimum harmonisation Directive setting up rules for the supply of digital content – No change for goods

5.6Option 5: A voluntary model contract, combined with an EU trust mark

6How do the options compare?

6.1Comparison of Policy Options

6.2Preferred Policy Option

Nature of the instrument and legal basis

Digital content

Types of digital content covered

Substantive content – areas of law covered

Goods

Substantive content – areas of law covered

7How would actual impacts be monitored and evaluated?

1What is the problem and why is it a problem

1.1Introduction

Context

Following the Guidelines of President Juncker, the European Commission has set the creation of a Digital Single Market as one of its key priorities to generate additional growth in Europe. The Digital Single Market Strategy 1  identified as one of its three main pillars to boost the EU’s digital economy "better access for consumers and businesses to online goods and services across Europe".

The Digital Single Market Strategy considers e-commerce as a main driver for growth. The e-commerce market has indeed grown rapidly in recent years within the overall retail sector. According to Ecommerce Europe, the value of retail e-commerce in the EU in 2014 reached a total of €370 billion and grew by 13.4%% compared with 2013. 2 Others estimate the online retail sales growth at an average annual rate of 22% in the period 2000-2014, surpassing €200 billion in 2014 and reaching a share of 7% of total retail in the EU. 3 The Commission's recent estimate 4 is within the range of the above estimates at €231 billion (around 1.8% of EU GDP). Enterprises' turnover from retail e-commerce as a share of total retail turnover has risen by 85% from 2009 to 2014. 5 In the same period final expenditure of households (which follows retail sales in terms of volume and trends) only increased by 2.8%, showing again that retail trade is growing much faster online than offline. 6

However, e-commerce still has a significant untapped potential. The share of e-commerce in the total retail sector remains significantly lower in Europe compared to the United States: In 2014, the share of e-commerce in total retail was 7.2% in the EU compared to 11.6% in the USA. 7 A main reason why the EU is currently lagging behind the US on exploiting the growth potential of e-commerce is the insufficient development of cross-border e-commerce within the EU. In 2014, only 12% of EU retailers sold online to consumers in other EU countries, while more than one third (37%) 8 did so domestically. Only 15% of EU consumers purchased online from another EU country in 2014, while 44% did so domestically. 9 As for traders' online purchases, a very large majority (83.3%) are made domestically, with only an average of 12.2% coming from other EU countries. 10  

Thus, instead of taking full advantage of the opportunities of the Digital Single Market, businesses and consumers are too often constrained to their own domestic markets. The Digital Single Market Strategy however promotes better access for consumers and businesses to online trade of goods and services across Europe. The aim is for EU businesses to become more competitive by being able to sell more easily to more than just their national or a couple of neighbouring national markets. An increased offer would also strengthen competition in the markets. This would not only bring consumers a wider choice of products at more competitive prices, but also increase their confidence to buy abroad because they would trust the high level of European consumer protection.

However, the commercial and technological pace of changes due to digitalisation is very fast. If EU businesses are to become more competitive and if EU consumers are to have trust in high-level EU consumer protection standards allowing them to engage in the Digital Single Market, the EU needs to act now to reap the benefits of digitalisation. Otherwise, changes may come too late and opportunities could be lost.

Approach

Within this context, in order to quickly strengthen the competitiveness of EU businesses and boost EU growth, the Commission decided to deal as a priority with the digital dimension of retail, namely the supply of digital content and the online sales of goods. Already the Political Guidelines of President Juncker announced "ambitious political steps towards a connected Digital Single Market notably … by modernising and simplifying consumer rules for online and digital purchases”. The Digital Single Market Strategy includes in its list of key actions both "harmonised EU rules for online purchases of digital content" and "key mandatory EU contractual rights for domestic and cross-border online sales of goods". Both these aspects of this digital supply/sales dimension are fundamental and need to be addressed together.

The barriers to the supply of digital content clearly need to be addressed because the supply of digital content has a particularly strong growth potential. Any delay regarding digital content entails the risk that legal fragmentation and hence barriers to trade will increase, as some Member States have already legislated, others are doing so and others still can be expected to follow if no action is taken at EU level.

Goods still represent by far the biggest share of the online market: of the €231 billion estimated total size of the Digital Single Market, some €212 billion stem from retail in goods. 11 The Digital Single Market potential would not be unleashed if only digital content, but not online sales of goods, was addressed. In order to have a sizeable impact on the overall EU economy, the online sales of goods also needs to be facilitated. In President Juncker's progress report 12  on the European Commission's 10 Priorities, the need to "remove the barriers that today hamper you from buying online the pair of shoes you want from another Member State" is mentioned as a practical example among many others. Online sales of goods are however not only important from the angle of business turnover, but require also a specific attention from the angle of creating consumers' trust into the Digital Single Market. It is important to give clear rights to consumers in order to mitigate the distance-related risks (no in-person contact with the seller, no "touch and feel" of the product) inherent to these transactions.

Moreover, there is a particular reason coming out of the consultation process why any rules on the online sales of goods should be addressed together with the rules on digital content. The already mentioned risk of legal fragmentation stemming from emerging national legislations on digital content creates an urgent need for the EU to establish quickly uniform rules in order to avoid even more obstacles to the cross-border supply of digital content. One important trend emerging from the different consultations which the Commission has run for the preparation of the present initiative was that any rules on digital content should be as far as possible based on the rules on the sales of goods, deviations being justified only to take account of the specificity of digital content. Indeed this approach is appropriate and has been followed. To ensure such a consistent approach also during the legislative process, both sets of rules should be discussed as far as possible in parallel.

In its approach, the Commission specifically also takes into account the lessons learnt from the proposal for a Regulation on a Common European Sales Law and the legislative process leading to the Consumers Rights Directive. The idea of an optional instrument has been abandoned and it is no longer attempted to deal with an area where problems are identified in a comprehensive manner. Instead, the proposed initiative will be targeted and focused on key national mandatory consumer contract law rules which create obstacles to cross-border trade. 13

Complementarity and coherence with the REFIT exercise

The context and approach as described above show that it is opportune to act fast on digital content and the online sales of goods. At the same time, it is recognised that harmonising the rules on online sales of goods has one downside, i.e. the risk to have rules on the online sales of goods which are different from the rules on the offline sale of goods. This could mean that retailers who are selling both online and offline would have to apply a different regime and that consumer rights may vary depending on whether they purchase online or offline. Given the increasing importance of the omni-channel distribution model (i.e. selling at the same time via multiple channels such as directly in a shop, online or otherwise at a distance), the Commission will take steps to avoid such a result and ensure that consumers and traders will indeed be able to rely on a coherent legal framework which is simple to apply everywhere in the EU.

Therefore, together with the current work on this digital dimension, the Commission has, in the context of its Regulatory Fitness and Performance Programme (REFIT), launched an in-depth analysis of the existing EU consumer legislation. This Fitness Check is considerably broader than the current initiative as it covers a number of consumer law directives, notably the Unfair Contract Terms Directive 14 , the Consumer Sales and Guarantees Directive, 15 the Unfair Commercial Practices Directive 16 , the Price Indication Directive 17 the Injunction Directive 18 and the Misleading and Comparative Advertising Directive 19 .

Data from the Fitness Check Analysis on the application of the Consumer Sales and Guarantees Directive to off-line sales of goods are likely to be available in the 2nd half of 2016. While these data and therefore the outcome of the Fitness Check exercise on this point are not known at this stage, its possible conclusions pointing to the need for a Commission initiative on the offline sales of goods could feed into the progress made by the co-legislators on the proposal on online sales of goods.

In this way the discussions on offline sales of goods will not have to start at zero and repeat issues that have already been discussed and agreed for the online sales of goods. This also means that any difference in the dates of entry into force of rules on the online and offline sales of goods could be reduced, or even aligned by the co-legislators if they so choose thus actually avoiding any risk of different regimes for online and offline sales. Whilst the outcome of the Fitness Check cannot be prejudged at this stage, fragmentation between the rules on online and offline sales of goods is not likely to occur in practice. The large consultation strategy undertaken for the current proposal on digital content and online sales of goods already covers many issues under the Sales and Guarantees Directive that are equally relevant for online and offline sales of goods. In this way, a large part of the analysis work concerning the provisions of this initiative to identify and remedy the possible problems has already been undertaken in the context of the rules for online sales of goods as part of the present initiative.

Scope of this impact assessment

The Digital Single Market Strategy for Europe tackles in a holistic manner all major obstacles to the development of cross-border e-commerce in the EU. Dealing with all those obstacles together and improving the situation for businesses and consumers will bring the expected boost to the Digital Single Market and the overall EU economy. The Digital Single Market Strategy identified differences in contract law between Member States, including differences in the main rights and obligations of the parties to a sales contract, among the barriers to cross-border e-commerce. The present impact assessment focusses on these issues.

1.2Business-to-consumer (B2C) contracts

1.2.1Existing legal framework

Overview of the existing EU legislation

Substantive law - The Consumer Rights Directive 20 has fully harmonised certain rules for online sales of goods and supply of digital content (mainly pre-contractual information requirements and the right of withdrawal). However, there are no specific EU rules to protect consumers against non-conforming digital content. There are only minimum harmonisation rules on the notion of conformity with the contract and on remedies for non-conforming goods (under the Consumer Sales and Guarantees Directive) the implementation of which some Member States have chosen to extend to digital content. In addition, for both digital content and goods there are minimum requirements on unfair standard contract terms (under the Unfair Contract Terms Directive). Since these are minimum standards, Member States have the possibility to go further and add requirements in favour of consumers. Many Member States have used this possibility on different points and to a different extent.

Conflict of law rules - The Rome I Regulation 21 allows contracting parties to choose which law applies to their contract and determines which law applies in the absence of choice. A trader who "directs his activities" to consumers in another country may either apply the consumer's national law or choose another law (in practice almost always the trader's national law). In this latter case, however, the trader must also respect the mandatory consumer contract law rules of the consumer's country to the extent that those rules provide a higher level of consumer protection. When the trader does not direct his activities to consumers in a specific Member State but agrees to enter into a contract at the consumer’s own initiative, consumers do not benefit from the more protective rules of their national law.

Main differences between consumer mandatory contract law rules affecting cross-border trade of goods

There are several key contract law areas where differences exist between Member States' national mandatory rules that apply to consumer sales contracts. These differences mainly result from national mandatory rules going beyond EU minimum harmonisation Directives. 22  

Implementation of the Consumer Sales and Guarantees Directive:

Hierarchy of remedies: According to the Directive, if a good is non-conforming a consumer is first required to request repair or replacement. Only as a second step can the consumer ask for termination of the contract or price reduction. 20 Member States 23 have followed this approach while other Member States have gone beyond this minimum requirement offering the consumer from the beginning a free choice between repair, replacement or termination. 24 Another group of Member States 25 have taken over the hierarchy of remedies but also provide for another remedy, namely a right to reject non-conforming goods within a short deadline.

Notification duty by the consumer: Member States are authorised to stipulate that in order to benefit from their rights, consumers must inform the seller of the defect within two months from its discovery. In case of non-notification consumers lose their right to remedies. While in 11 Member States 26 consumers do not have to notify within a certain timeframe, in 12 Member States, 27 the consumer has to notify the defect within 2 months, and in 5 Member States 28 the consumer has to do so within a different period of time.

Reversal of the burden of proof: A consumer can only ask for a remedy if the good was non-conforming when delivered. The burden of proof is reversed during the first 6 months, obliging the trader during this period to prove that no such defect existed at the time of delivery. While 25 Member States have laid down a shift of burden of proof for 6 months, 3 Member States have extended this period (Poland to one year, France 29   and Portugal to two years).

Legal guarantee period: The trader can be held liable for a period of no less than 2 years for defects which were present at the time of delivery. While 23 Member States have made use of this 2 year period, in 1 Member State 30 the period is 3 years and in 2 Member States 31 it is unlimited. In 2 other Member States 32 there is no specific legal guarantee period, but the consumer rights are only limited by the prescription period (time limits in national legislations within which rights can be invoked in court).

Implementation of the Unfair Contract Terms Directive:

The scope of unfairness control: The Directive, which is also applicable to contracts for the supply of digital content, prohibits traders from including in their contracts clauses which have not been individually negotiated and which are unfair to consumers. However, the unfairness control does not cover clauses negotiated individually between the trader and the consumer, nor the definition of the main subject matter of the contract or the adequacy of the price and remuneration. In 7 Member States 33 individually negotiated contractual terms are also subject to unfairness control. In 6 Member States 34 the unfairness control is extended to the main subject matter of the contract or to the adequacy of the price or remuneration.

List of unfair terms: The Directive provides an indicative, non-exhaustive list of 17 clauses which may be regarded as unfair in a contract. Several Member States have gone further, providing a list of clauses that are always considered as unfair (black lists) 35 or a combination of a black list and a list of clauses that are presumed unfair (grey list). 36

There are also some other mandatory consumer contract law rules which do not have their origin in the implementation of EU consumer law. Some of those rules apply only in a single Member State. 37 These are isolated cases as they concern only specific points for individual Member States. Consequently they are not considered as obstacles for intra-EU cross border trade. There are also two examples of other mandatory contract law rules which exist in several Member States: spares parts 38 and merger clauses 39 . These rules, however, have not been identified by stakeholders as possible barriers to cross-border trade. Therefore, the possible obstacles stemming from different national legislations to be analysed in this impact assessment are only those stemming from national implementation going beyond the minimum rules of the Sales and Guarantees and the Unfair Contract Terms Directives.

Different national consumer contract law rules applying to digital content

Most Member States do not yet have specific national legislation on digital content. Contracts for the supply of digital content is categorised differently from one Member State to another. For instance, depending on the Member State, these contracts are considered as sales contracts, as services contracts or as rental contracts. In addition, contracts for the supply of digital content (for example, music, video games, films, cloud storage services, broadcast of sport events) are also categorised differently within each Member State depending on the type of digital content offered. 40 As a consequence, for digital content, national rights and obligations as well as the remedies for consumers vary within the same Member State as well as between Member States. This is for example the case for the consequences of termination of cloud computing contracts. In France, the courts impose a cooperation obligation upon a service provider to help customers migrate data after the termination of the contract. An analysis of the Dutch provisions on services contracts (under which cloud contracts could legally be qualified) also shows that the provider has a duty to return the stored data received from the customer. In many other Member States, such obligations do not exist. 41  

While some of these national rules are non-mandatory and can be modified contractually by the parties, others are of a mandatory character.

Finally some Member States have recently enacted 42 or started to work 43 on specific mandatory rules on contracts for the supply of digital content. However, these rules differ in scope. For example, in the United Kingdom new legislation which sets specific mandatory rules for digital content only covers digital content paid for with money. In the Netherlands, however, digital content supplied on a medium or through downloading that is paid for 'in kind', i.e. against the supply of the consumer's personal data, will also be subject to mandatory rules.

Emerging national legislation on digital content also differs in terms of substance. For instance, in Dutch law the consumer has the right to withhold payment until the trader performs according to the contract, while the UK Consumer Rights Act does not provide consumers with any statutory rights in relation to withholding performance for non-conforming digital content. In Dutch law consumers' rights against the trader are extinguished after two years from the moment the consumer has notified the trader about the defect. In the United Kingdom there is no notification duty for consumers and their rights are prescribed after a period of 6 years (5 years in Scotland).

1.2.2Problem 1: Differences in consumer contract law rules hinder traders from selling digital content and goods online cross-border

Consistently during the last years data show that traders consider differences in national consumer protection and contract law rules as important obstacles to trade in other Member States. In 2012 44 "Additional costs of compliance with different consumer protection rules and contract law (including legal advice)" ranked among the top two obstacles to developing cross-border sales and was mentioned by 41% of all retailers. In 2014 45  "differences in national consumer protection rules" and "differences in national contract law" were reported as important obstacles to developing online sales to other EU countries by respectively 41% and 39% of retailers who currently sell online. A vast majority of business organisations responding to the public consultation insisted on the negative effects of legal fragmentation and on the costs that differences in national legislations impose on businesses.

Remedies in case of a non-conforming product are a significant problem. For 49% 46 of retailers currently selling or having sold in the past online cross-border, "guarantees and returns are too expensive". This number is even higher among traders who are not yet active in cross-border trade but are currently trying to sell or considering selling online cross-border in the EU. 67% estimate that "guarantees and returns are too expensive". 47

62% of EU retailers that are either active or interested in online cross-border trade would "definitely" or "to some extent" start or increase their online cross-border sales if the same rules for e-commerce applied in the EU. 48 Removing such obstacles is clearly an incentive for cross-border trade, especially when combined with other measures foreseen in the Digital Single Market Strategy, for instance to reduce parcel delivery costs.

By discouraging traders from expanding their online activities abroad, differences in consumer contract laws prevent businesses from reaping the benefits of economies of scale. By selling to other Member States and building their share in new target markets, businesses could decrease their production and development costs and increase their efficiency. This problem is particularly relevant for SMEs, i.e. 99% of all European businesses. SMEs are often confined to a small home market with high production and development costs. A reduction of e-commerce costs would enable SMEs to achieve growth through exports and economies of scale that cannot be achieved from the domestic market alone.

The extent to which contract law-related obstacles cause businesses to miss out on the opportunities offered by online cross-border trade is significant. It is estimated that if the barriers related to contract law were lifted, the number of businesses selling online cross-border could increase by more than 5 percentage points (an increase of around 12% in relative terms) compared to the current situation. 49 According to a conservative estimate, this means that over 122,000 more businesses would start selling online cross-border. 50  

Differences in mandatory consumer contract law rules for goods and digital content create additional costs for traders

While online traders may choose to apply their own contract law when selling to a consumer in another Member State, they also have to respect the mandatory consumer contract law rules in the consumer's Member State which provide a higher level of consumer protection, in case they direct their offer to consumers in the Member State concerned. Such mandatory rules currently exist mainly for goods. 51 However, as already mentioned above 52 mandatory rules for the supply of digital content are also emerging in some Member States, creating differences between national rules governing these contracts. In addition, in some Member States, certain contracts for the supply of digital content are assimilated to a sales contract, and therefore the differences in consumer mandatory rules for the sale of goods would also apply to digital content. 53 All these differences have a direct impact on traders.

For instance, a Polish trader directing his selling activities to consumers in Sweden should respect the three-year legal guarantee period under Swedish law instead of the two-year period that applies when he is selling to Polish consumers. Likewise, a Portuguese trader may refuse a request from a Portuguese consumer to replace a non-conforming product 3 months after discovery of the defect, if the Portuguese consumer has not complied with his obligation to notify the defect within 2 months after discovery. However, a Portuguese trader targeting a German consumer will not be able to rely on such a notifcation duty and will have to replace a non-conforming product sold to a German consumer also 3 months after discovery, because such notification duty does not exist under German law.

Businesses may adopt different practices and approaches towards contract law-related differences when selling cross-border. Some bear the additional costs of adapting their contracts according to the laws of the Member States that they target. Others do not adapt their contracts but may shoulder additional costs to assess the legal and financial risk in case of disputes with consumers in the targeted Member States. The costs stemming from differences in consumer contract law are mainly one-off costs (namely the costs for identifying the foreign rules, possibly translating them, analysing them and consequently possibly adapting general terms and conditions and even the business model accordingly), but also ongoing costs for periodical adaptations to changes in national laws or costs specific to litigation where expert opinion on foreign contract laws is needed.

This has been confirmed through in-depth interviews held with businesses with experience or interest in cross-border online sales. 54 According to this information, some traders adapt their contract terms and conditions to the consumer contract law rules of the Member States where they target their activities. To do this, some seek external professional advice from lawyers or consulting businesses, at a cost ranging from €4,000 to €12,000 per Member State. Other traders believe that they should adapt their contracts but currently do not, because the costs involved would be too high. Among those who do not adapt their terms and conditions, some rely on national certification schemes such as quality labels and trust marks to ensure that their company complies with local consumer contract legislation. In the latter case, companies have to incur one-off costs to obtain the trust mark as well as periodic renewal costs. Again others rely on the platforms through which they sell their products to comply with the legislation of the targeted Member States. Finally, other traders do not take any measures at all in that respect, but satisfy all customers' requests without examining their legal grounds according to consumer contract law rules.

The one-off contract law-related costs incurred by businesses are estimated at around €9000. 55  These figures are confirmed by a major EU retailers' association responding to the public consultation, which reported contract law-related costs of €9,000-10,000 for its members to enter the market of one Member State. If one focuses, following a conservative approach, only on one-off costs incurred by exporting retailers (B2C) who actually examine the applicable foreign law in advance (47% 56 ), the overall one-off contract law-related costs currently incurred by EU traders are estimated around €4 billion euros. 57

The impact of these one-off costs is likely to vary depending on the size of the company, and would particularly affect micro and small enterprises with a smaller turnover, as shown in Table 2. 58 For instance, the decision of a micro enterprise active in retail trade to export to 4 Member States would entail contract law-related costs of approximately €36,000, which would surpass 10% of its annual turnover.

Table 2: Contract law-related costs for businesses as a share of their annual turnover

Source: Eurostat Structural Business Statistics 2012, SME Panel Survey

Disproportionate contract law-related costs may thus constitute an additional disincentive for micro or smaller retailers to expand their business by entering foreign markets.

The complex legal situation of digital content leads to uncertainty

Specifically for digital content, legal uncertainty already exists at national level because the qualification of the contract for the supply of digital content is not always clear. This leads to uncertainty about, for instance, which remedies apply under which conditions. 59 This uncertainty becomes even more important for traders willing to sell cross-border, as they will often not know whether there are rules applying to digital content in the Member State they want to export to, what is the content of those rules and whether they are mandatory. Traders are likely to face difficulties to evaluate the legal risk when developing a new business model that could apply to several Member States or even all over the EU. Results from a recent study based on interviews with EU businesses selling digital content online show that approximately a quarter of the businesses interviewed were dissuaded from engaging in cross-border activities due to legislative gaps and differences between Member States' national contract law rules. 60  

1.2.3Problem 2: Consumers are not confident when buying digital content and goods online cross-border

While 61% of EU consumers feel confident about purchasing online from a retailer/provider located in their own country, only 38% feel confident about purchasing online from another EU country. 61 Consumers' confidence in buying cross-border has been low over the years. Between 2012 and 2014, consumer confidence about purchasing online from another Member State only increased from 36% to 38%. From 2006 to 2011, the share of consumers being equally confident in buying in other EU countries as in their own went up from 30% to 34% (reaching the top level in 2008 with 35%).

The low level of cross-border e-commerce in the EU is thus mirrored in the low level of consumer confidence in buying cross-border. Consumers would benefit from increased involvement in cross-border trade. Stronger confidence in cross-border trade would boost the volume of transactions and increase consumer welfare through increased availability of a wide variety of products at more competitive prices. 62 It is estimated that reducing contract law-related consumer concerns would increase the number of consumers buying online cross-border by around 7 percentage points compared to the current situation (an increase of circa 13.5% in relative terms); this means that between around 8 to 13 million additional consumers would start buying online cross-border, raising the total number of consumers shopping online cross-border up to almost 70 million. 63 The removal of contract-law related concerns would also increase the average sum spent annually by consumers in online cross-border shopping by 13.6%, which in real terms would represent an additional annual spending of €40 per consumer buying online cross-border. 64  

In addition, if consumers were to shop online cross-border, they would be able to take advantage of existing price divergences 65 between Member States, as shown in Table 3. For example, a Swedish consumer could pay 17% less buying clothes in Germany while a UK consumer could pay 20% less buying household appliances in Ireland. Whilst these price differences do not take account of factors such as differences in taxation and delivery costs (in part to be addressed by other initiatives in the Digital Single Market strategy), they nevertheless point to important potential opportunities for consumers.

Table 3: Differences in price levels for consumer goods across the EU (EU-28 average=100)

Source: Eurostat 2015, Statistics explained, Comparative price levels of consumer goods and services

Uncertainty when buying digital content and goods hinders cross-border trade

Consumers' lack of confidence can be attributed to a number of different factors. For instance, the difficulty to obtain redress is an issue; 23% of online consumers express concerns that it may be more difficult to solve problems cross-border. The redress situation for online transactions for extra-judicial disputes will be improved by the Online Dispute Resolution platform to be launched at the beginning of 2016 66 and for judicial disputes by the revised European Small Claim Procedure. 67

A lack of awareness by consumers about their rights may also play a role; 11% of EU online consumers do not know their rights when buying online from another EU country. Consumers also fear that other laws protect them less than their own; 8% are concerned that the level of consumer protection they will enjoy when buying from another EU country will be lower than in their own country. 68  

One of the major factors creating a lack of confidence for consumers to shop online cross-border is their uncertainty about their key contractual rights. Data shows that the lack of certainty about contract law rights is often related to non-conforming products. Indeed, a quarter of the top 12 main concerns of EU online consumers about online cross-border are related to non-conforming products: 20% of consumers believe that it will not be easy to get a non-conforming product replaced or repaired, 20% think it will not be easy to return products and get reimbursement and 15% are concerned that the product will not be delivered at all or will be wrong or non-conforming. 69

To remedy this uncertainty, a possible approach could consist in better informing consumers about their rights. The Commission has been very active in informing consumers about their rights buying cross-border. As most recent example, the Commission launched in 2014 a major information campaign on consumer rights, among others when buying non-conforming products across borders. 70 However, information activities in this area have their limits.

Firstly, in the current legal situation, the protection consumers enjoy by their national law when buying cross-border depends on whether a trader actively directs its commercial activities to the consumer’s country. A consumer who chooses to make a purchase from a foreign trader who does not actively direct its commercial activities to the consumer’s country will not benefit from the potentially higher level of protection of his own country. For example, an Austrian consumer who purchases clothes in an Italian e-shop which does not actively direct commercial activities to Austria will have to notify the defect to the Italian trader to benefit from the legal guarantee while under his own law he does not have such obligation. If the consumer’s Member State is targeted by the trader's commercial activities the consumer is protected by his own law to the extent that the mandatory consumer contract law rules of his own law exceed the level of protection of the trader's law. This differentiation, i.e. whether a foreign trader actively directs its commercial activities to the consumer’s country, implies a legal assessment which depends on the circumstances of the relevant case and is done on a case-by-case basis 71 . An information campaign cannot realistically enable a consumer to make such an assessment.

Second, to be effective, information campaigns must include simple messages which can be remembered. Consumer information campaigns at EU level in areas which are only minimally harmonised cannot include such a simple message, except that consumers enjoy in the EU common minimum rights when buying faulty products from other Member States. These campaigns cannot inform consumers about simple and clear rights, such as a single legal guarantee period. Therefore, better consumer information on its own is not sufficient to eliminate consumers' uncertainty.

Consumers' detriment due to lack of clear contract law rights for digital content

A very large share of consumers are watching films, listening to music, playing games, watching sport events or communicating online on their electronic devices everywhere in the EU. 72 Online access of digital content is much more prevalent among younger internet users, showing that in the near future the overall number of online digital content users could be expected to increase significantly. 73  

Digital content provided without paying money, for instance by simply 'registering', accounts for a very large proportion of consumer digital content. Recent data shows that around 30% of consumers (legally) accessing antivirus and navigation software or cloud storage services, 77% of those streaming events and more than 50% of those watching films and TV content, reading e-books or playing games do so without paying money. 74  The importance of digital content not supplied against money is confirmed by additional recent data. During the last 12 months, 82% and 80% respectively of EU internet users watched sport events and audio-visual content (films, series, video clips and TV content), 77% listened to music, 76% played games and 64% accessed e-books while not paying money. 75

However, recent data from 2015 shows also that over the last 12 months, at least 70 millions of consumers 76 (nearly 1 in 3 online users) who have used music, anti-virus software, games or cloud storage services 77 have experienced problems with their digital content related to quality, access or contract terms and conditions. Among online consumers who purchased or tried to purchase digital content online cross-border and experienced problems, 16% reported having received the wrong digital content, 13% a digital content of lower quality, 9% faulty digital content and 10% reported not having been able to access the digital content. 78

Only 10% of consumers experiencing problems related to access, quality or the terms and conditions of the supply of digital content receive remedies. Consumers 79 reported that the reasons invoked by providers for not providing a remedy were that they were not obliged to do so either by the contract or by law, or that the consumer did not sufficiently prove that there was a problem with the digital content.

Digital content is usually offered to consumers off-the-shelf, on the basis of non-negotiable contracts. The user can influence neither the digital content features nor the contract clauses. Many consumer contracts for digital content include clauses which exclude contractual remedies or limit them severely (for example by excluding liability altogether or offering service credits as the only available remedy). 80 They also include clauses which enable the provider to unilaterally modify the digital content without specifying the conditions for such modifications, 81 or set conditions which do not enable consumers to easily identify that a modification has taken place (for example by inviting consumers to check regularly the terms of the contract 82 or the Service Level Agreement to learn about such changes instead of expressly informing consumers and allowing them to stop the use of the service in case they disagree with the changes). Often, when consumers want to change supplier, they have no guarantee that they will retrieve their data. These problems were reported by a relatively lower share of consumers, but they account for a sizeable share of consumer detriment. 83  

As a result of the problems faced with digital content and of the relatively low share of consumers receiving remedies, consumers suffer financial and non-financial detriment. In the last 12 months before the survey, the combined financial and non-financial detriment resulting only from the most recent problem with just four types of digital content is estimated in the range of €9 - 11 billion in the EU. 84 This number is likely to increase in line with the growth of the digital content market in the EU and the expected increase of the number of EU consumers accessing digital content online in the near future. 85

1.2.4How would the problem evolve in the absence of EU action: No policy change/baseline scenario

The e-commerce market in the EU is growing rapidly, at double-digit annual rates, many times faster than the growth in total retail sales. However, the extent of e-commerce penetration varies significantly between Member States. 86 While the growth and size of national e-commerce sales is influenced by many factors, such as the quality, availability, and cost of high-speed internet services, the role of traditional distance sales channels (catalogues) and general economic conditions, data suggest that the size of the overall retail market influences the size of the domestic e-commerce sector 87 . National e-retailers appear to be held back by the scale of their national markets. Similarly, consumer e-purchases are restrained by the limited domestic offer. The implication is that without EU intervention the growth of cross-border e-commerce in the EU will continue to be held back by uncertainty and regulatory fragmentation.

Without EU intervention to tackle these problems, businesses will continue to face unnecessary costs and consumers will remain unsure about their rights and face unnecessary difficulties in enforcing them. Businesses will still have to comply with the national mandatory consumer contract law rules when selling online to other EU countries. Some 57% of businesses have indicated that differences in Member States’ e-commerce laws discourage them from selling across borders. 88 Businesses that adapt their terms and conditions or want to assess in advance the legal and financial risk in the event of disputes will continue to face additional contract law-related costs of about €9,000 per Member State to which they wish to export. Overall contract law-related one-off costs, which have already reached around 4 billion, will increase in line with the number of EU businesses exporting to other Member States, and the number of Member States to which they export. 89  

Moreover, it can be expected for digital content that other Member States, alongside the UK, the Netherlands and soon Ireland 90 , will enact specific but different mandatory consumer national laws for digital content. This will impose additional costs for those businesses who want to sell digital content in other Member States.

Contract law-related costs will continue to impose an especially disproportionate burden on SMEs, and in particular micro and small businesses who wish to expand their activities cross-border. It will hinder SMEs from exploiting economies of scale.

Additional contract law-related costs absorb resources that businesses could otherwise use for more productive activities, such as research and development. As a barrier to market entry, these costs also reduce incentives for innovation. The persistence of contract law-related barriers to market entry will continue to limit competition, resulting in less consumer choice and higher prices. Although one might expect the percentage of consumers buying online cross-border to continue to increase at a moderate rate, the persistence of contract law-related concerns will deter a share of EU consumers from buying online cross-border; they will thus continue not to benefit from better prices in other EU Member States.

Consumers will continue to benefit from the rights and remedies in existing EU legislation. Enforcement of the existing EU consumer protection legislation should be strengthened by the revision, announced in the Digital Single Market Strategy, of the Consumer Protection Cooperation Regulation, which will clarify and develop the powers of enforcement authorities and improve the coordination of their market monitoring activities. Furthermore, the Online Dispute Resolution platform should make it easier for consumers to reach an out-of-court settlement and the improved Small Claims procedure 91 will make it easier to obtain court redress.

Differing national regimes will however remain an obstacle to efficient enforcement. The continued existence of different national regimes will impose an additional burden on national court systems, which will be required (as at present) to apply the laws of other EU Member States in some disputes. In addition, the lack of legal clarity could have a negative impact on the ability to exercise one's right to an effective remedy before the courts. All in all, the added workload will to some extent decrease the overall efficiency of justice compared to the current situation.

A number of other measures announced by the Commission in the Digital Single Market Strategy to secure Europe's position in the digital economy will also benefit both consumers and businesses. For example, giving copyright law a more European dimension, notably through cross-border portability and other measures to improve consumers' cross-border access to legally acquired content, will remove a key obstacle to cross-border online sales. This will form a comprehensive package with action against geo-blocking that is not compatible with a single market and with action on company-erected barriers that come under the competition sector enquiry into e-commerce. The actions set out in the Strategy will substantially contribute to market transparency and improve competition both in terms of prices and consumers' access to a wider variety of products. At the same time they create a level playing field for companies to engage in cross-border trade and help them scale up. In the first half of 2016 the Commission will also launch measures to improve price transparency and enhance regulatory oversight on parcel delivery. This action will address the problems related to the delivery and return costs, which were identified in recent surveys as major consumer concerns when it comes to online purchases from other EU countries. Parcel delivery has also been identified as a major obstacle by EU retailers, especially by SMEs that lack purchasing power in relation to postal operators. Measures towards affordable, high-quality cross-border parcel delivery services will thus enhance both consumers' and retailers' confidence in engaging in cross-border e-commerce. Reducing VAT-related burdens and obstacles to selling across borders is another action that is expected to yield significant savings for EU businesses that wish to make cross-border sales. All these measures, which fall under the first pillar of the Digital Single Market, are complemented by additional actions under the two other pillars of the Strategy, such as the on-going consultation and analysis of the role played by platforms in the market, including in terms of B2B level-playing field and enforcement of consumer rules.

However, the 16 actions announced in the Strategy are to be considered as a whole, as their synergy will deliver maximum impact and address long standing bottlenecks hampering the achievement of a truly integrated market. The achievement of its intended benefits requires that each one of the key obstacles is addressed. Therefore, without additional action on contract law-related barriers - one of the major obstacles identified by the Digital Single Market Strategy - its benefits will remain limited and incomplete.

1.3Business to Business (B2B) contracts

1.3.1Existing EU legal framework for B2B transactions

B2B contracts are dominated by the principle of contractual freedom. Thus, very limited EU legislation applies to these contracts: only the Directive on Electronic Commerce 92 has introduced some rules on pre-contractual information for electronic contracts. A set of rules concerning goods was introduced by the 1980 UN Convention on Contracts for the International Sales of Goods 93 (CISG). For digital content there is currently no EU legislation on conformity and remedies. For both goods and digital content national contract laws apply. These rules are generally not mandatory and can therefore be waived or changed by agreement of the parties. For digital content, the rules may differ not only as to the substance of the rules themselves but also as to the legal qualification given to contracts for the supply of digital content.

1.3.2Contract law rules do not seem to be a major hindrance for cross-border B2B online transactions

Among businesses currently selling online to other businesses, 49% sell cross-border within the EU. Around half of these businesses derive up to 25% of their annual turnover from cross-border sales. 94 Contract law obstacles highlighted in the B2C context hindering businesses from selling cross-border are not as significant in the B2B context. While 35% of businesses trying or considering B2C cross border sales regard guarantees and returns as a major problem, this is the case for only 14% of businesses active in B2B. It should be noted that the share of 14% of companies reporting the above contract law-related problems for B2B transactions as major ones are all SMEs. This may be an indication that such problems are more prevalent for SMEs compared to large companies. 95  

The relatively low prevalence of contract law-related obstacles for the B2B market has been confirmed by the Stakeholders' Consultation Group 96 : a large majority of stakeholders highlighted that contract law rules do not represent an important obstacle for businesses to sell cross-border to other businesses. Indeed, according to a recent business survey, over 80% of businesses that sell, used to sell, or are considering selling to other businesses in other EU countries reported that differences in national rules would not directly influence the scale of their cross-border activities. 97  

The major concerns reported by businesses that are trying or considering buying online from other EU countries are not related to contract law. They relate to the cost of resolving cross-border complaints and disputes (46%), high delivery costs (42%), lack of language skills (29%), data protection (29%), foreign suppliers refusing to deliver to their country (26%), product labelling requirements and copyright (each 25%) and payment systems (24%). 98 Contrary to the retail sector, there is currently no evidence of actual or perceived problems related to differences in contract law rules that hinder EU businesses from buying online from other Member States.

As a consequence, a very large majority of stakeholders 99 who responded to the public consultation considered that the focus of the initiative should remain on B2C and not include B2B contracts. Discussion with Member States also showed a clear lack of demand for an initiative tackling contractual issues for B2B. Business organisations in the Stakeholders' Consultation Group referred to the generally non-mandatory nature of B2B rules. They highlighted the significance of freedom of contract as an overarching principle in B2B contracts, be it in terms of the freedom to choose the law that will apply to the contract or the freedom to adapt B2B contract law default rules which would in many cases pre-empt potential problems regarding contractual issues.

The underlying message confirmed by both recent data and stakeholders is that, contrary to consumers who are generally less well informed about products, market characteristics and business practices and find themselves in a structurally imbalanced position compared with the trader, this is mostly not the case for professional business-buyers, where imbalances in bargaining power are due to the respective market situations which will be different on a case-by-case basis.

1.3.3Specific issues related to digital content in the B2B context

Certain specific contract law-related problems in the B2B context have been identified in relation to cloud computing services.

The possibility to access the cloud and use digital content such as applications and software or store data can spare businesses the expense of purchasing, installing and maintaining hardware and software locally; however, in 2014 only 19% of EU enterprises used paid cloud computing services, mostly for hosting their e-mail systems and storing files in electronic form. 100   101 Almost half (46 %) of those firms used advanced cloud services relating to financial and accounting software applications, customer relationship management or to the use of computing power to run business applications.

Four out of ten businesses (39%) that used the cloud in 2014 reported the risk of a security breach as the main limiting factor in the purchase of cloud computing services. 102 From the businesses’ point of view, the risk of a security breach is not only a technical issue but also a matter of contract terms governing the service providers’ liability and accountability 103 . This conclusion has been confirmed by the Expert Group on Cloud Computing Contracts. 104 Experts pointed out the important financial risk of cloud services' users who face contractual clauses unreasonably limiting the liability of cloud service providers in case of a security breach. Indeed, businesses, and in particular SMEs, which do not necessarily have sophisticated backup solutions, may lose entire parts of their business if they do not have access to their data for a period of time.

Moreover, issues of uncertainty about the location of data may arise, due to the fact that cloud service providers may use data centres in different countries. This factor was reported as limiting the use of cloud computing, particularly for large businesses already using the cloud (46%). 105  Other contract law issues may exist. For example, the question arises whether traders should have an obligation to help customers transfer their data when they want to change provider. Understanding the exact quality level of the service that was promised is also challenging for users, in particular when they have to demonstrate that the service did not function properly. These issues have been identified by the Expert Group on Cloud Computing Contracts as also affecting businesses and in particular technologically less equipped SMEs. 106  In reply to the public consultation, the main EU SMEs organisation pointed out the need to protect SMEs in this area.

However, despite these similarities between the problems faced by consumers and SMEs as cloud service users, there are also specificities that have to be taken into account to determine the right approach of intervention for each sector. Both the Expert Group on Cloud Computing Contracts and the Stakeholders' Consultation Group 107  insisted on the need not to overburden businesses selling digital content to other businesses with obligations that would hamper their competitiveness in a fast evolving market. 108 They also made clear that while it is true that SMEs users are often the weak part in cloud computing contracts, the freedom of contract in the B2B environment should not be jeopardized. A recent experience in the food supply chain shows that in order to find solutions to the asymmetry and possible misuses of bargaining powers between businesses, a non-legislative approach could be a possible alternative. 109

Overall contract law related problems in B2B relations may stem from differences in bargaining power, difficulties to agree on the applicable law or difficulties to find information about foreign law, especially for SMEs. The need to also protect SMEs has been recognised in the Digital Single Market Strategy and will be analysed in the context of other actions announced in the Strategy.

2Why does the EU need to act?

When selling goods to consumers in other Member States, businesses are confronted with different mandatory consumer contract law rules resulting from the current possibility given to Member States to go beyond the minimum requirements set out by EU legislation. 110  

For digital content, existing legislation already contains mandatory rules to some extent. In addition, market trends prompt Members States to take action independently. Several Member States have recently enacted or started preparatory work to adopt mandatory rules on contracts for the supply of digital content. These national rules differ however in scope and in content. 111 It is to be expected that other Member States will follow this trend if the EU does not act. Given the heterogeneity of the online market for digital content it would be difficult for the market to overcome the existing legal complexity and fragmentation. Contractual practice so far has not produced consumer rights with an adequate level of consumer protection.

All these different national mandatory rules –both affecting digital content and the online sale of goods - create costs and complexity for businesses and negatively affect the volume of cross-border trade as well as consumer welfare. Consumers are deprived of more offers at more competitive prices.

As already explained 112 , in order to rapidly strengthen the competitiveness of EU businesses and boost EU growth, it is necessary to act now and to deal as a priority with the digital dimension of retail, i.e. both the supply of digital content and the online sales of goods. For digital content, there is in addition a specific need for the EU to act swiftly in order to prevent legal fragmentation from increasing and to raise the potential of the current digital revolution and growth opportunities. Finally, in order to maintain consistency between the rules on digital content and on the sale of goods as far as the specificity of digital content does not require deviations, it is reasonable to discuss both sets of rules together.

This initiative complies with the principle of subsidiarity, as Member States on their own initiative would not be able to remove the barriers that exist between national legislations. Each Member State individually would not be able to ensure the overall coherence of its legislation with other Member States' legislations. This is why an initiative at EU level is necessary. The legal basis for the initiative would be Article 114 TFEU on its own or in combination with Article 81 TFEU, depending on the option retained.

Such an initiative will provide consumers with harmonised contract law rights when buying goods online. It will reduce costs for businesses as they will no longer have to face different consumer mandatory rules resulting from the current possibility given to Member States to go beyond the minimum requirements set out by EU legislation. Consumers would benefit from more offers at better prices. In addition, for digital content, an initiative at EU level would secure the development of consumer rights in a coherent manner while ensuring that all consumers in the EU benefit from a high level of consumer protection. It will create legal certainty for businesses which want to sell their digital content in other Member States.

Harmonised contract law rules in the EU would facilitate coordinated enforcement actions undertaken by the Consumer Protection Co-operation authorities. They will provide a consistent legal basis for these actions which result in negotiated undertakings at the EU level. These coordinated actions offer businesses a "one-stop-shop" enforcement approach and strengthen enforcement of EU legislation for the benefit of EU consumers. 113 For example, the recent in-app purchases action 114 enabled providers to negotiate with the Commission and the Consumer Protection Authorities in a coordinated manner instead of 28 separate national authorities.

Finally, the present initiative will add value to other measures in the Digital Single Market. Other measures, such as reducing VAT-related burdens, developing high-quality cross-border parcel delivery services or a modernised copyright law will create new opportunities for European consumers and companies. These opportunities can only be exploited to their maximum extent if they are completed by an initiative on contract law-related obstacles, as contracts are the tools for all transactions related to these other measures.

3What should be achieved?

The general objective of the initiative is to contribute to faster growth of the Digital Single Market using the potential of e-commerce. The initiative will increase most consumers' trust in the Digital Single Market by providing a high level of consumer protection and ensure more offers and better prices for consumers. At the same time, it will create a friendly environment for businesses and contribute to increasing the volume of cross-border trade. More concretely, with regard to online sale of goods, the aim is to avoid the patchwork of different key mandatory consumer contract rules between the Member States which creates costs and uncertainty for both businesses and consumers. For digital content, the aim is avoid fragmentation and uncertainty for businesses and consumers as well as consumer detriment. Consumers should have concrete rights when they acquire digital content but do not get what was promised.

4What are the various options to achieve the objectives?

4.1Scope: B2C transactions

While differences in mandatory consumer contract law rules have been identified as one of the main obstacles that hinder the development of cross-border e-commerce, there is currently no evidence 115 that differences in contract law rules do hinder EU businesses from buying online from other Member States. While SMEs face some problems as cloud service users, business representatives have argued in the Stakeholders Consultation Group that these issues would be best addressed in other initiatives announced in the Digital Single Market Strategy. During the public consultation, all stakeholders and Member States argued that the current initiative should focus on B2C contracts only, with the exception of the main SMEs association which supported the extension of rules on digital content to B2B transactions. 116

4.2The options

Option 1 - Setting up targeted, fully harmonised rules for the supply of digital content and targeted, fully harmonised rules for online sales of goods

Positions of stakeholders 119 : For digital content, the vast majority of consumer representatives favour fully harmonised rules, provided that a high level of consumer protection is guaranteed. The majority of businesses also support a full, targeted harmonisation. However, several IT associations and big companies do no not see the need for such harmonised rules. Nevertheless, they acknowledge that if legislative action should be taken at all, it should be at EU level. The majority of responding Member States supports harmonised EU rules for online sales of digital content. For goods, consumer representatives would favour harmonised rules, provided that the level of consumer protection is increased in comparison to the current situation. Businesses also generally support harmonisation, in particular the fact that it would be full harmonisation. Member States are more divided; while some would support EU harmonised rules, others do not see the need to act at this stage. However, a majority of stakeholders and Member States warn about the possible fragmentation between online and offline sales of goods.

Option 2 - Setting up targeted, fully harmonised rules for the supply of digital content / Application of the trader's law combined with the existing harmonised rules on goods

Positions of stakeholders: For digital content, see under Option 1. For goods, consumer representatives unanimously oppose such an approach. Some businesses would favour harmonised rules but some would see the application of traders' law as a good solution. Among Member States which answered to this question in the context of the public consultation, a number of them explicitly oppose any form of the application of the home option and a re-opening of the Rome I Regulation while a couple showed some openness.

Option 3 - Setting up targeted, fully harmonised rules for the supply of digital content / No policy change for goods

Positions of stakeholders: For digital content, see under Option 1. For goods, a majority of stakeholders and Member States warn about the possible fragmentation between online and offline sales of goods. In line with this, many suggest waiting for the end of the REFIT Fitness check evaluation.

Option 4 – Minimum harmonisation rules for the supply of digital content / No policy change for goods

Positions of stakeholders: For digital content, the vast majority of consumer representatives favoured fully harmonised rules, provided that a high level of consumer protection is guaranteed. Businesses oppose minimum harmonisation. Member States also generally preferred full harmonisation over minimum harmonisation. For goods, see under Option 3.

Option 5 – A voluntary European model contract combined with an EU trust mark

Positions of stakeholders: For digital content and for goods, stakeholders and Member States in their majority are rather sceptical about the added value of such an approach, with limited exceptions.

Note: all the options presented would apply to cross-border and domestic online sales.

4.3Discarded options

Building in particular on the experience drawn from the negotiations of previous initiatives aiming at harmonising contract law rules, such as the proposal for a Regulation on a Common European Sales Law and the Consumer Rights Directive, the following options are discarded:

Optional instrument: while having received strong support from the European Parliament, the proposal for a Regulation on a Common European Sales Law 121 did not find a majority in Council. One of the main reasons for this opposition in the Council was the optional character of the proposal. Therefore, this option has not been taken into consideration as it was not considered politically feasible.

Comprehensive, instead of targeted, problem-focussed set of rules: another main lesson drawn from the experience with the negotiation of the proposal for a Regulation on a Common European Sales Law is not to provide for a truly comprehensive set of rules, but a much more targeted and problem-oriented regulation approach. Therefore, this option of a truly comprehensive set of rules has not been taken into consideration as it was not considered politically feasible.

Information measures: While information is important and useful to improve consumer knowledge about their rights, information measures on their own are not sufficient. First, information measures would not create sufficient consumer trust as they could not ensure that all consumers benefit from the protection provided by their national law when buying cross-border. Second, information campaign can realistically not eliminate the uncertainty faced by consumers when buying online outside their home market in the context of a rather complex legal framework characterised by minimum harmonisation. 122  Therefore, this option has not been taken into consideration as it was not considered sufficient to meet the objectives.

5What are the impacts of the different policy options and who will be affected?

5.1No policy change/baseline scenario: See Section 1.2.4

5.2Option 1: Setting up targeted, fully harmonised rules for the supply of digital content and targeted, fully harmonised rules on online sales of goods

5.3Option 2: Setting up targeted, fully harmonised rules for the supply of digital content – Application of the trader's law combined with the existing harmonised rules on goods

5.4Option 3: Setting up targeted, fully harmonised rules for the supply of digital content – No policy change for goods

5.5Option 4: A minimum harmonisation Directive setting up rules for the supply of digital content – No change for goods

5.6Option 5: A voluntary model contract, combined with an EU trust mark

6How do the options compare?

6.1Comparison of Policy Options

The policy options are compared in terms of their contribution to the policy objectives set out in Section 3 as well as their main impacts as analysed in Section 5.

Policy Objective: Reduce costs for businesses resulting from differences in national consumer contract laws

The 'No policy change/Baseline Scenario' will not achieve the objective. Differences between national consumer contract laws for the online sale of goods would remain and businesses would continue to incur the current contract law-related costs. For digital content, further legal fragmentation due to the likely enactment of mandatory specific rules on digital content contracts in more Member States (in addition to those which have already legislated or are preparing such legislation) will impose further contract law related costs on businesses supplying digital content to consumers in other Member States.

Policy Option 1 will to a great extent achieve the objective. Consumer contract law rules relevant for cross-border trade of goods would be the same in all Member States. Businesses would thus be able to rely largely on their own law when selling cross-border, and would avoid additional costs. New rules on digital content and to a lesser extent on the online sales of goods will entail additional one-off adaptation costs for businesses, but these would be counterbalanced by the positive effects of a fully harmonised regime across the EU that would prevent legal fragmentation, facilitate cross-border trade and increase consumer trust in and therefore demand for cross-border purchasing.

Policy Option 2 will fully achieve the objective for businesses selling goods online, as they would no longer have to apply the possibly more protective consumer contract law rules of the Member States in which they wish to sell, but will rely entirely on their own law. For digital content it will achieve the objective in the same way as Policy Option 1.

Policy Option 3 will achieve the objective for digital content in the same way as Policy Options 1 and 2. For goods, it will not achieve the objective, as the situation will be the same as in the No policy change/Baseline scenario.

Policy Option 4 will not achieve the objective. As a result of minimum harmonisation for both digital content and goods traders would still need to comply with different national mandatory consumer contract law rules providing a higher level of consumer protection when selling in other Member States, and thus would incur the current contract law-related costs. For goods, it will not achieve the objective, as the situation will be the same as in the No policy change/Baseline scenario.

Policy Option 5 will not achieve the objective, as companies selling goods cross-border will still be obliged to comply with mandatory national rules of the consumer's country of residence, when they provide for a higher level of protection than the model contract, and may thus still face the current contract law-related costs. For businesses supplying digital content to consumers, this option would also not eliminate the risk of further fragmentation and therefore may impose additional costs.

Policy Objective: Reduce legal uncertainty for businesses

No policy change/Baseline Scenario will not achieve the objective. Differences between national consumer contract laws for the online sale of goods would remain. Further legal fragmentation on rules for the supply of digital content due to the likely enactment of national mandatory specific rules on digital content will entail further legal uncertainty for businesses supplying digital content to consumers in other Member States.

Policy Option 1 will fully achieve the objective, since businesses will be able to sell goods online or supply digital content to consumers throughout the EU based on the same set of consumer contract law rules. This will increase legal certainty and contribute to a business friendly legal environment.

Policy Option 2 will fully achieve the objective. For the online sale of goods businesses will be able to rely on their own law when selling abroad, and therefore there would be no need for them to investigate foreign laws. Moreover, full harmonisation of the rules on digital content will increase legal certainty for businesses and prevent future legal fragmentation.

Policy Option 3 will achieve the objective for digital content in the same way as Policy Options 1 and 2. For goods, it will not achieve the objective, as the situation will be the same as in the No policy change/Baseline scenario.

Policy Option 4 will not achieve the objective, since minimum harmonisation for digital content would create a fragmented legal environment for traders wishing to sell cross-border. For goods, it will not achieve the objective, as the situation will be the same as in the No policy change/Baseline scenario.

Policy Option 5 will not achieve the objective, as differences between national laws for the sale of goods will remain and businesses will be obliged to comply with mandatory national rules of the consumer's country of residence, when they provide for a higher level of consumer protection than the model contract. For businesses supplying digital content to consumers, this option would also not eliminate the risk of further fragmentation and therefore may increase legal uncertainty.

Policy Objective: Contribute to building consumers' trust in online cross-border shopping in the EU

No policy change/Baseline Scenario will not achieve the objective. Although consumers would enjoy a high level of protection due to minimum harmonisation rules in combination with the Rome I Regulation, differences between national laws would remain and consumers would still be uncertain as to their rights and the level of protection they will enjoy when buying cross-border.

Policy Option 1 will fully achieve the objective. Consumers will have a clear set of rights throughout the EU and will thus be more confident in buying goods or accessing digital content cross-border. Although Member States will not be able to adopt or maintain more protective consumer protection rules, the overall level of consumer protection in the EU will rise. While the level of consumer protection in a few Member States on one or a few points will decrease, the impact of this on the overall positive effects on cross border trade is likely to be minor. Recent data show that among the reasons for the lack of consumer confidence when buying cross-border, the fear that other laws protect consumers less than their own is only a minor factor. Uncertainty about consumers' key contractual rights is a considerably more important factor creating their lack of confidence to shop online cross-border. 153  Policy Option 1 would remedy this uncertainty.

Policy Option 2 will fully achieve the objectives in the same way as Policy Option 1 for digital content. For goods, this option will not achieve the objective; on the contrary it would deteriorate the current lack of consumer confidence. The application of the trader's law for the online sale of goods and the respective derogation from the Rome I Regulation will in practice mean that EU consumers would no longer benefit from the potentially higher level of consumer protection that their own national law going in its implementation beyond the Consumer Sales and Guarantees Directive may provide on top of the trader's law. In some cases they may benefit from a potentially higher level of protection if the trader's law goes on specific points beyond their own national law. However, the fact that they will be potentially deprived from the level of protection they currently enjoy under their national law would fail to increase consumers' confidence in cross-border purchases. In addition, such a change might entail the removal of protection offered by mandatory consumer contract law rules in transactions with traders from third countries.

Policy Option 3 will fully achieve the objective as far as the rules on digital content are concerned, in the same way as Policy Options 1 and 2. For goods, it will not achieve the objective, as the situation will be the same as in the No policy change/Baseline scenario.

Policy Option 4 will to some extent achieve the objective as far as the rules on digital content are concerned. Minimum harmonisation for digital content rules would create minimum rights for consumers of digital content in the EU, and Member States would be able to adopt more protective rules. Consumers' confidence when buying/accessing digital content could be increased to some extent. However, the possible differences between national laws that would emerge as a result of minimum harmonisation would create a legally fragmented environment and undermine consumers' confidence in cross-border transactions. For goods, the option will not achieve the objective, as the situation will be the same as in the No policy change/Baseline scenario.

Policy Option 5 will to some extent achieve the objective. It would provide consumers with a satisfactory level of consumer protection, however very much depending on the content of the model contract rules to be agreed upon by the industry and on the degree of usage and acceptance of the trust mark by EU businesses. Consumers may be more confident to buy from foreign traders to whom the EU trust mark has been awarded.

Policy Objective: Reduce consumer detriment with non-conforming digital content

No policy change/Baseline Scenario will not achieve the objective. In the absence of specific and clear rights on digital content, consumers would continue to suffer detriment caused by unresolved problems with digital content that is not in conformity with the contract.

Policy Option 1 will fully achieve the objective, since consumers will have clear and specific rights when facing problems with digital content. This will enable them to seek remedies for their problems and thus reduce the financial and non-financial detriment currently suffered in the event of non-conforming digital content.

Policy Options 2 and 3 will fully achieve the objective, in the same way as Policy Option 1

Policy Option 4 will to a great extent achieve the objective. Minimum harmonisation for digital content would create minimum rights for consumers of digital content in the EU, and Member States would be able to adopt more protective rules. This will enable them to seek remedies for their problems and thus reduce the financial and non-financial detriment currently suffered in the event of non-conforming digital content.

Policy Option 5 will to some extent achieve the objective. It would provide consumers with a satisfactory level of rights that they can invoke in the event of problems faced with non-conforming digital content. The extent to which this option could reduce consumer detriment is highly dependent on the content of the model contract rules to be agreed upon by the industry and on the degree of usage and acceptance of the trust mark.

Main impacts

Policy Option 1 will entail overall one-off adaptation costs of about €1.55 bn for all EU businesses supplying digital content online and about €7.5 bn for all EU businesses selling goods online. Under this option, EU GDP is projected to permanently increase in real terms by about €4 billion, and the net present value of this additional output over a period from 2020-2029 would be about €28 bn. The number of consumers buying online cross-border could increase by about 7 percentage points, raising the total number of consumers shopping online cross-border to between 64 and 70 million. The average annual cross-border online spending would also increase by an additional €40 per consumer buying online cross-border. The average decrease in consumer prices across the EU is estimated at -0.25%. Household consumption, which mirrors consumers' welfare, would rise in every Member State at an average of +0.23 for the EU28 (which corresponds to about €18 billion). The level of consumer protection across the EU will be significantly improved.

Policy Option 2 will entail one-off adaptation costs of about €1.55 bn for all EU businesses supplying digital content online. EU GDP can be expected to permanently increase in real terms by about €1.4 billion. The net present value of the additional output over a period from 2020-2029 would be about €9 billion. The average decrease in consumer prices across the EU can be expected to be at -0.06%, while household consumption could rise by an average of +0.07 for the EU28. The level of consumer protection in the EU for the purchase of goods will be lowered, since consumers will be deprived of the protection currently ensured by the Rome I Regulation.

Policy Option 3 will entail one-off adaptation costs of about €1.55 bn for all EU businesses supplying digital content online. No macroeconomic benefits can be estimated for this option, since the supply and demand-side barriers will continue to exist in the online market of goods, which represents more than 90% of the total value of the Digital Single Market, together with services ordered online and consumed offline. The level of consumer protection will improve for consumers of digital content in the EU.

Policy Option 4 will entail one-off adaptation costs of about €1.55 bn for all EU businesses supplying digital content online. No macroeconomic benefits can be estimated for this option, since the supply and demand-side barriers will continue to exist in the online market of goods, which represents more than 90% of the total value of the Digital Single Market, together with services ordered online and consumed offline. The level of consumer protection will improve for consumers of digital content in the EU.

Policy Option 5 would entail one-off adaptation costs of about €374 million for businesses selling goods online and about €78 million for businesses supplying digital content online. The benefits of this option depend on the extent of usage and acceptance of the model contract and the trust mark by EU consumers and businesses. It can be assumed that the benefits will be significantly limited, based on the estimate that only about 5% of EU businesses would take up the model contract and trust mark.

Summary table 1 – Achievement of objectives

Key: (-) means that the option deteriorates the current situation; (0) means that the option does not meet the objective; (+) means that the option meets the objective to some or to a great extent; (++) means that the option fully meets the objective.

Summary table 2 – Assessment of impacts

Key: A negative impact is marked as "-"; no impact as "0", a positive impact as "+" and a highly positive impact as "++".

6.2 Preferred Policy Option

The option which contributes most to the achievement of the policy objectives and has the most positive overall impact is Option 1. 154 For digital content, both consumer organisations and business associations in the context of the public consultation support a full harmonisation approach, to ensure consumer confidence and prevent legal fragmentation. For goods, a majority of stakeholders and Member States warn about the possible fragmentation between online and offline sales of goods. While this concern is considered with the greatest care, fragmentation is unlikely to arise in practice and the benefits of acting now outweigh this limited risk. 155  Consumer organisations would support full harmonisation as long as a high level of consumer protection is ensured. On the industry side, although some business associations would prefer the application of the trader's law in consumer sales 156 , the majority of them support the full harmonisation approach to avoid legal barriers.

Businesses will benefit from a single set of contract law rules throughout the EU. They will no longer have to incur costs of adapting their contracts to different Member States' laws when selling in other EU countries. The benefits from the increase of cross-border trade will spill over into domestic economies through increased competition. The overall macroeconomic impacts on GDP, consumer prices and consumer welfare will be positive.

The impact of the preferred option should be seen in the context of the holistic approach of the Digital Single Market Strategy 157 , together with the other initiatives announced there. Altogether, these initiatives aim to tackle all main obstacles to the functioning of the Digital Single Market. This covers among others the initiatives related to the role of platforms, the European Cloud initiative, VAT related burden and parcel delivery. It also covers initiatives related to enforcement/redress, i.e. the entry into operation of the Online Dispute Resolution platform 158 and the review of the Consumer Protection Co-operation Regulation 159 on cooperation between national authorities responsible for the enforcement of consumer protection laws. Together with the recent adoption of the revised online-friendly Small Claims Regulation, these initiatives cover online dispute resolution, some coordination of public enforcement and facilitation of enforcement of judgments, and will therefore be able to optimise the effects of the fully harmonised substantive rules put forward in this initiative.

Nature of the instrument and legal basis

The initiative would consist of a coherent legislative package of two full harmonisation Directives: one Directive on certain aspects concerning contracts for the supply of digital content and a Directive on certain aspects concerning the online sales of goods. The legal basis could be article 114 TFEU. The choice of Directives leaves Member States more freedom to adapt the implementation to their national law than Regulations would do. For instance, the Directive on the supply of digital content would not determine whether the contract for the supply of digital content is to be considered for example as a sales, services, rental or a sui generis contract; it would leave this decision to Member States. A Regulation, however, would require a much more detailed and comprehensive regime than a directive in order to allow its effects to be directly applicable. This would have as a consequence considerably more interference into national laws. It may also jeopardise the future-proof character of the instrument, since, contrary to a Directive, it would have to go to a level of details that would not allow the margin to adapt the implementation of the fully harmonised rules to a technologically and commercially fast-moving market like the one for digital content.

Digital content

Types of digital content covered

The instrument should have a comprehensive scope and cover all types of digital content (for example, music, games, films, software or cloud storage). This would address problems across the different categories of digital content and avoid unjustified discriminations by creating a level-playing field between product categories, the borders of which are extremely vague and subject to fast technological development. Stakeholders consider that frequent interplay exists between different categories of digital content. In the public consultation, such an approach is supported by both consumer organisations and a vast majority of business associations, although businesses involved in the trading of digital content would prefer to make some distinction between different categories of digital content. The vast majority of Member States which responded to the public consultation would be in favour of a broad definition of digital content, given the fast technological and commercial development of digital content.

This instrument would cover digital content supplied not only for a price but also in exchange for (personal and other) data provided by consumers, as these data have an economic value for digital content suppliers. While consumer organisations are in favour of such an approach, businesses are more divided. Some businesses fear a risk of overlap with data protection rules. Of the Member States which responded to the public consultation, four would not be in favour. All the others support this approach or are at least open for discussion.

Substantive content – areas of law covered

The key substantive provisions of the initiative should include those key consumer contract law rights on digital content that consumers should be able to use when faced with the most common problems. 160 These provisions should cover notably remedies, the reversal of the burden of proof, damages, and termination of contracts. In particular, the instrument should include a mixture of contractual and statutory conformity criteria against which the quality of the digital content is assessed. This is favoured by both business and consumer stakeholders. Member States almost unanimously support this approach.

For goods, EU law already foresees a shift of the burden of proof from consumer to supplier. That means that the supplier must prove that the goods were in conformity with the contract when they were delivered to the consumer; the consumer does not have to prove that the goods were already defective. Due to the technical nature of digital content and the difficulty for consumers to ascertain the cause of a problem, the reasoning for the shift of the burden of proof applies all the more to digital content. Therefore the burden to prove non-conformity should be reversed and the supplier should prove conformity. This reversal should not be limited in time as (unlike goods) digital content is not subject to wear-and-tear. Consumer organisations pointed to the difficulties which consumers may face with the burden of proof especially in circumstances when the parties involved in the supply would blame each other in case of a problem. Accordingly, they unanimously considered that the trader should have the burden of proof. For the majority of businesses non-conformity should be proven by the consumer. For some of them there should be a reversal of the burden of proof for a period that varies from two to six months.

In addition, the consumer would benefit from a range of remedies (bringing the digital content back to conformity, reduction of the price or termination of the contract) addressing both the failure to supply and lack of conformity of the digital content. A limited harmonisation of the right to damages restricted to cases where damage has been done to the digital content and hardware of the consumer would complete other remedies the consumer has vis-à-vis the supplier. While consumer organisations are supportive of this approach, a majority of the main EU businesses associations are reluctant about harmonisation of damages. Member States are divided: a number of them would be in favour of including a right to damages or they are open for discussion while for the others this issue should be left to national legislations.

A few other rights which respond to existing contractual practices in the market should also be established. The consumer’s right to terminate a contract if the supplier modifies it safeguards on the one hand the possibility for suppliers to adapt their digital content or services; in such a fast-moving market this would be very often positive for the consumer. On the other hand it also allows consumers to get out of a contract if the modified digital content no longer matches what the consumer wanted to acquire at the time of conclusion of the contract. The inclusion of such a rule is broadly supported by all stakeholders, with the exception of an digital technology industry association that seems reluctant towards the right to terminate a contract where discounts were provided to the consumer for a certain period of time. Business associations argue that this right should be granted under the condition that the termination is notified to the trader in advance, while the main European consumer organisation links the exercise of this right to the possibility to retrieve data (see below).

The right to terminate long term contracts prevents lock-in situations for the consumer and allows switching between providers, thereby contributing to higher competitive pressure on prices and innovation and to a healthy market with lower entry barriers. Consumer organisations argue that users should be able to terminate a long-term contract by prior notice, provided that this is not subject to formal requirements that would limit the exercise of the right to terminate. When creating this right, they also want to make it possible for the consumer to retrieve his data. According to the majority of businesses users could have the right to terminate long term contracts and termination should be exercised in advance and by notice. Representatives of the digital technology industry and other business associations/ companies seem reluctant towards the right to terminate a contract where benefits (such as discounts or additional features) were provided to the consumer for a certain period of time. Many business associations would support a general consumer right to retrieve their data. However, some of them raise the issue of possible overlaps with data protection rules or copyright rules. Other businesses, especially IT companies, would not be in favour of a right to retrieve or transfer user-generated content.

The consequences of termination would include not only the return of the price corresponding to the unconsumed content, but also the possibility for consumers to retrieve data without inconvenience. This is an important feature of the termination right because otherwise lock-in effects could be created: this could make it disadvantageous for the consumer to exercise the right of termination and thereby reduce its effectiveness. Consumer organisations support such a right, arguing further that consumers should be able to retrieve their data in a commonly usable format to avoid lock-in effects caused by possible lack of interoperability between different suppliers’ platforms. Although many business associations would support a general consumer right to retrieve data, the majority of them raise the issue of possible overlaps with data protection rules, while one association argues that such a right should be restricted to user generated content provided by the consumer in social media services/platforms.

Unlike goods, a legal guarantee period during which the supplier is liable for a lack of conformity does not need to be envisaged; consumer rights would be limited by national prescription periods. Such a guarantee period starting from the time of supply does not fit with the nature of digital content, which is often supplied in a continuous manner over a period of time. Moreover, differently from goods, digital content is not subject to wear-and-tear and a defect in one copy usually means that all copies of the digital content have a similar problem. Consumer and business organisations have different views on this issue: the former plead for a long (or infinite) period of guarantee, the latter for a short one.

Goods

Substantive content – areas of law covered

The key substantive provisions of the initiative should cover the main differences of national consumer mandatory rules which affect traders’ decision whether or to which extent to sell goods cross-border.

The instrument should maintain a mixture of contractual and statutory conformity criteria against which the quality of the good is assessed, while clarifying the relationship between the two so that the consumer has clear expectations. Using contractual and statutory conformity criteria is based on the model of the Consumer Sales and Guarantees Directive. In the context of the public consultation, all main consumer and business stakeholders argued in favour of maintaining the approach of the current Consumer Sales and Guarantees Directive as to the criteria establishing conformity of goods. The vast majority of respondents to the public consultation believe the current combination of subjective and objective conformity criteria provided for in the Consumer Sales and Guarantees Directive is appropriate.

The order in which remedies can be exercised as foreseen in the Consumer Sales and Guarantees Directive should be maintained (repair or replacement of the goods, reduction of the price or termination of the contract). This is supported by business associations while the vast majority of consumers associations support a free choice of remedies. This approach has been implemented by the large majority of Member States and proven its value in practice by providing a balanced distribution of rights between seller and consumer. According to recent consumer data 161 , 77% of EU28 consumers agree that it is reasonable for a seller to offer a repair or replacement –and not a refund- when a problem with a product occurs for the first time. This will maintain the current level of consumer protection in 20 Member States 162 and decrease it for the 6 Member States that currently have no hierarchy of remedies 163 and the 2 Member States where beside the hierarchy of remedies a short-term right to reject is currently in place 164 . A free choice of remedies had been proposed in the Proposal for a Common European Sales Law, based on the optional character of this instrument. It turned out to be one of the most controversial points of this proposal. Learning from this experience was another reason why the model of the Consumer Sales and Guarantees Directive was retained. Certain features of the current Directive are clarified to the benefit of the consumer, such as the fact the consumer would be entitled to termination or price reduction if the seller does not repair or replace the goods within a reasonable time.

Consumers would also have the right to terminate also in case of minor defects. This will increase the level of protection in 24 Member States where such right is currently not given to consumers, while maintaining the current level of protection in the remaining 4 Member States. 165  

Consumers would not need to notify a defect within a certain period of time, as the existing optional possibility for Member States to create such an obligation has adverse effects for the internal market. Differences in requiring compliance with notification periods can lead to consumers losing their rights in cross-border transactions due to their lack of awareness of this notification obligation and is therefore counterproductive to harmonising remedies. This is supported by consumer organisations, which argue that a notification obligation would be disproportionately burdensome for consumers and that the latter are anyway always interested in notifying the trader of any defect as early as possible. This is indeed supported by data which shows that consumers are in general rather active and react in due time. Depending on the type of product, between 37% and 58% of problems were followed up immediately when the problem occurred and between 25% and 32% of problems were followed up within one week. 166  On the other hand, most business associations argue that a lack of notification could impair the ability of the trader to adequately repair or replace a defective product. Such an absence of notification will increase consumer protection in 17 Member States 167 and maintain the current level of protection in the remaining 11 Member States.

The period of time during which the burden of proof is reversed in favour of the consumer should also be fully harmonised to increase legal certainty; its length (two years) will be aligned with the legal guarantee period. While business associations plead for maintaining a period of 6 months corresponding to the current minimum harmonisation rules of the Consumer and Sales Directive, this extension is very largely supported by consumer organisations. Such an extension will simplify the remedies regime and allow consumers to exercise their right effectively for the entire length of the guarantee period. Extending the period of reversal of the burden of proof would facilitate the exercise of consumers' rights and is in line with the European Commission's goal to promote a circular economy and the durability of products. 168 The same length for both the legal guarantee period and reversal of the burden of proof period will provide more legal certainty, and result in higher awareness and easier enforcement of the EU rules on the legal guarantee. Moreover, recent survey data 169 suggests that both traders and consumers are largely unaware of the existing burden of proof rules and that a longer period for the shift of the burden of proof to the seller does not make a significant difference in practice, as it often operates de facto throughout the entire 2-year legal guarantee period. 170 Thus, the extension of the period of reversal of the burden of proof is not likely to make a large difference in practice for traders. Extending the period of reversal of the burden of proof will increase the level of consumer protection in 26 Member States, and maintain the current level of consumer protection in the two remaining Member States. 171  

The length of the legal guarantee period should be fully harmonised and maintained at the level of two years currently provided for in the Consumer Sales and Guarantees Directive and its implementation in the very large majority of Member States. In its Proposal for a Common European Sales Law, the Commission had chosen another approach; it had dropped the guarantee period and introduced a model based only on uniform rules on prescription periods. This approach was discussed with stakeholders and Member States during the preparation of the present instrument but did not find support. Therefore the Commission considers it more appropriate to go back to the approach in the Consumer Sales and Guarantees Directive. The existing length of the legal guarantee period is widely favoured by the vast majority of business associations, since it has worked very well in practice. Moreover, according to recent consumer data, roughly equal shares of consumers who experienced problems with a product for which they felt they had a genuine cause for complaint reported that this problem had occurred within the first six months, between 6 and 12 months or between one and two years after purchasing the product 172 . This means that a 2-year period is sufficient to cover the majority of problems reported by consumers. In addition, recent data show that the relative majority of consumers (between 34%-43%) 173  consider that a 2-year legal guarantee period is reasonable for white, brown and grey goods 174 . Consumer organisations, on the other hand, support a longer legal guarantee period of 6 years, especially for durable goods. A 2-year legal guarantee period will maintain the current level of consumer protection in 23 Member States 175  and decrease it in the remaining 5 Member States 176 .

The same period of two years should be applicable to second hand goods (whereas the current Directive foresees a possibility to reduce to one year). While this choice is supported by consumer organisations, most business associations would prefer a shorter legal guarantee period for second hand goods. This will increase consumer protection in 13 Member States 177 which have currently reduced the legal guarantee period for second hand goods to one year, while maintaining the current level of consumer protection in the remaining 15 Member States. 

Unlike digital content, the instrument should not include a right to damages, as Member States' contract laws already have such a right in case of non-conforming goods; interference in such established well-functioning regimes is not necessary. This position is shared by all stakeholders, including the main European consumer organisation and all main business associations.

Similarly, the instrument should not fully harmonise the rules on unfair terms. There is currently no sufficient evidence showing that different rules on (and lists of) unfair terms constitute an obstacle for traders. Consumer associations strongly opposed any full harmonisation approach on unfair terms. On the industry side, one main business association advocated for a fully harmonised black list of unfair terms, while the majority of business associations just pointed out that the current unfair terms regime is sufficient. Moreover, the Unfair Contract Terms Directive will be evaluated in a comprehensive manner during the REFIT Fitness check process which will take place in 2016.

The table below summarises the main differences between the current implementation laws of the Consumer Sales and Guarantees Directive in each Member State and the main fully harmonised rules on the online sale of goods under the proposed instrument.

* The legal guarantee period in these Member States is only limited by the prescription period

Managing potential temporary differences between rules for offline and online sales

The possibility that for a transitional period the rules on online and offline sales of goods may differ,would in practice be rather limited. The Commission will take the necessary steps to ensure coherence with the Regulatory Fitness and Performance (REFIT) Programme, which will determine any possible need for an initiative on the offline sales of goods. If such differences were to actually occur for a short transitional period, they could affect businesses selling both online and offline, since the latter would have to comply with two different sets of rules according to their sales channel, as summarised in the table. Businesses also selling cross-border would not be negatively affected, since any additional costs arising from a potential divergence of regimes in their domestic market would be counterbalanced by the significant cost savings resulting from not having to adapt to other Member States' national consumer contract laws when selling online cross-border. Therefore, any possible negative effects would only concern those businesses that currently sell and will continue to both online and offline but only domestically.

However, in practice the impact of such a differentiation in certain key rules for online and offline domestic sales to consumers would overall not be very important and could be dealt with through adapted business practices. For example, in the 26 Member States where there might be a transitional divergence on the burden of proof rules for online and offline sales, this would not make a significant difference in practice: recent data show that only a minority of businesses insist on consumers proving the trader's liability within the entire 2 years legal guarantee period, and there is very limited change in traders’ behaviour before or after the 6 months on this point. Therefore, the shift of the burden of proof often operates de facto throughout the entire 2-year legal guarantee period, and thus the practical impact on businesses of possibly temporarily divergent rules on this point would not be significant. 178  

Given the limited practical impacts of such temporary divergences, omni-channel businesses could cope with possible, transitional differences between the regimes for online and offline sales of goods by applying the respective higher standards, which would enable them to use a single business model and thus save any potential additional costs.

On the consumers' side, a possible differentiation for a transitional period between the key rules on offline and online purchases would overall not have a very important impact either: on the contrary, the more protective rules on the burden of proof (in 26 Member States) and the notification duty (in 17 Member States) would boost online purchases, both domestically but most importantly cross-border and would thus contribute to increasing consumer confidence and welfare. There might however be a negative impact in 6 Member States resulting from the possible temporary co-existence of a free choice of remedies for offline purchases and a hierarchy of remedies for online purchases, since such a situation would not contribute to increasing consumers' confidence in buying online. However, this may be to some extent counterbalanced by another element of the proposal which facilitates the right of consumers to terminate the contract compared to the existing situation in 5 of those Member States 179 where the right to termination is excluded for minor defects.

Learning from the past

While similar attempts to approximate contract law rules on the sales of goods in the past were not or only partially successful, the current preferred policy option may overcome the problems faced in the past. This option is part of the broader Digital Single Market strategy, whose objectives have largely been supported by stakeholders and Member States. This option also specifically takes into account the lessons learnt from the proposal for a Regulation on a Common European Sales Law and the Consumers Rights Directive. The ideas of an optional instrument and a comprehensive set of rules regulating practically all relevant issues, as put forward in the Common European Sales Law, has been abandoned. The approach put forward by the preferred option will be focused on targeted consumer mandatory rights that remedy concrete key obstacles to cross-border trade. It will also only replace one single Directive for a specific sector. Finally, on substance, the preferred policy option offers a new dynamic as it strikes an appropriate balance between a very high level of consumer protection where necessary and a significantly increased legal certainty for businesses through full harmonisation. Concretely, the level of consumer protection set in the instrument is likely to be more successful than the level set in previous attempts: it adopts a practical approach consisting in maintaining substantive solutions that have proven their value in practice (e.g. duration of the legal guarantee period, hierarchy of remedies), while at the same time putting forward new solutions in comparison to past attempts where necessary and supported by recent data (e.g., reversal of the burden of proof). Even in the few Member States where the current national level of consumer protection would be decreased on individual points, the likelihood of a decreasing effect on consumer confidence would be largely outbalanced by the increase of consumer protection on other points, stemming from the overall increase of the EU level of consumer protection. More importantly, fully harmonised rules would address the main concern that consumers have when buying online cross-border: the uncertainty about their key contractual rights. 180

7How would actual impacts be monitored and evaluated?

Section 3 above identified four specific objectives to respond to the problems identified in this impact assessment. The analysis in Section 1 showed that the problems faced by both businesses and consumers were largely driven by an absence of clear rules for digital content products, and differences in some key provisions of national contract law rules governing (online) sales of goods. This leads to the definition of two operational objectives that will contribute towards achieving the specific objectives:

to provide businesses and consumers with a set of uniform, targeted rules for sales of digital content;

to eliminate contract law-related barriers to cross-border online trade in goods.

Member States will be required to send to the Commission the measures implementing the Directive on certain aspects concerning contracts for the supply of digital content and the Directive on certain aspects concerning the online sales of goods. These measures will set out the text of the adopted legislation by the Member States. The Commission will monitor these measures to ensure that they comply with the Directive.

Comprehensive statistics on online trade in the EU and more precisely retail online trade are available in the Eurostat database. These could be used as primary sources of data for the evaluation. This will be completed by the Consumer scoreboard 181 that is published yearly. In addition, suitable data collection tools could be used such as a specifics survey, a behavioural economics study, or a mystery shopping exercise. Such targeted exercises would aim to identify more precisely the extent to which changes in the indicators could be ascribed to the proposals. For example, while giving consumers the same rights throughout the EU should be expected to make them more confident in asserting their rights in cross-border transactions and thus help to reduce consumer detriment, the share of consumers who receive effective remedies will also be influenced by other factors, such as the effectiveness of the Consumer Protection Co-operation network.

The Commission will launch a monitoring and evaluation exercise to assess how effectively the two Directives will achieve the objectives. This exercise will take place no sooner than 5 years after the entry into application of the Directives, to ensure that enough data are available to enable a comprehensive evaluation of their impacts. This exercise will feed into a review process which will examine the effectiveness of the provisions of the Directives.

ANNEX 1 - Procedural information

Lead DG: Directorate General Justice and Consumers

Agenda Planning

The Commission had adopted in 2011 a proposal for a Regulation on the Common European Sales Law. While having received strong support from the European Parliament, the proposal did not find a majority in Council. The Commission in its 2015 Work Programme 182 announced that this proposal would be modified in order to fully unleash the potential of e-commerce in the Digital Single Market.

The Digital Single Market Strategy 183 adopted in May 2015 announced for the end of 2015 a proposal covering harmonised rules for online purchases of digital content and key mandatory contractual rights for domestic and cross-border online sales of tangible goods.

Organisation and timing

An Inter-Services Steering Group (ISSG) was set up in May 2015. The ISSG is chaired by the Secretariat General and the following Directorates General have been invited to participate: Justice and Consumers (JUST), Internal Market, Industry, Entrepreneurship and SMEs (GROW), Communication networks, content and Technology (CNECT), Competition (COMP), Economic and Financial affairs (ECFIN), Trade, the Legal Service (SJ) and the Joint Research Centre (JRC).

The ISSG met 4 times until the submission of the Impact Assessment to the Regulatory Scrutiny Board in September 2015. The ISSG approved the Inception Impact Assessment that was published on 23 July 2015 and the Impact Assessment Report.

Consultation of the Regulatory Scrutiny Board

The Impact Assessment Report was examined by the Regulatory Scrutiny on 14 October 2015. The Board…. [To be completed after the board meeting explaining how the Board's recommendations have led to changes compared to the earlier draft. This should be presented in tabular format – the first column identifying the Board's recommendation and the second column how the IA Report has been modified in response];

Overall Board's examination inputs

The revised Impact Assessment contains some improvements which take into consideration the Board's recommendations. In particular, additional explanation was included on why action is deemed to be necessary now, before the conclusion of the planned fitness check of the consumer law acquis, and why the present proposal is likely to be more successful than previous similar attempts to pursue approximation of national laws. Moreover, further clarification and justification was provided on the risk of having two distinct regimes for online and offline sales during a transitional phase, especially the impact of such a situation on businesses and consumers, in the light of the second opinion of the Board. Finally, the position of the different groups of stakeholders and the costs that the different options may have on each of them were further clarified.

Evidence used

The initiative was built upon a large set of data from the following sources. The quality of the results of the referred studies and surveys was assessed.

Surveys

Several surveys collected data from businesses and consumers on their experiences with contract law related problems. They include a survey carried out in 2015 in order to identify the main cross-border obstacles to the Digital Single Market 184 , Eurostat statistics 2014 185 ; Eurobarometers 186 and an SME panel 187 .

Studies

An economic study provided a better understanding of consumer digital content markets and evaluated the detriment suffer by consumer when purchasing digital content 188 . Legal studies provided an overview of the national rules may apply to cloud computing contracts 189 and the mandatory rules applicable to contractual obligations in contracts for sales of tangible goods sold at a distance and in particular online 190 .

External expertise

The Commission set up an Expert Group on Cloud Computing Contract 191 to identify safe and fair contract terms and conditions for cloud computing contracts for consumers and small firms; the work of this group fed also into the preparation of the Impact Assessment.

The Commission also held in-depth interviews with six companies from different Member States, in order to gather information on business practices and contract law related costs faced by businesses when selling abroad

ANNEX 2 - Stakeholder consultation

1. Summary of the consultation strategy/process

In line with the Commission’s minimum standards regarding participation and openness to stakeholders' views presented in the Better Regulation Guidelines 192 , an extensive consultation strategy has been developed to ensure a wide participation throughout the policy cycle of this initiative starting from the CWP 2015 adopted in December 2014 until the meeting of the Impact Assessment Regulatory Scrutiny Board on the Impact Assessment Report in October 2015. This strategy was based on a mix of public and targeted consultations. The Commission has sought a wide and balanced range of views on this issue by giving the opportunity to all relevant parties (businesses, consumers, national authorities, lawyers and academics) to express their opinions.

The Commission organised an extensive consultation process which included a public consultation, specific consultations targeting main stakeholders and Member States as well as consumers and businesses surveys as described below:

Inception Impact Assessment

In line with the Commission’s new better Regulation Guidelines, the inception impact assessment for this initiative was published online for stakeholder comments. No stakeholders sent comments on the inception impact assessment.

Public Consultation

An open 12 weeks web-based public consultation ran from 12 June to 3rd September 2015. The aim of this public consultation was to collect interested parties' views on the possible ways forward to remove contract law obstacles related to the online purchases of digital content and tangible goods. The public consultation resulted in 189 responses from all categories of stakeholders from across the EU.

Main trends

Digital Content

Consumer associations: The vast majority of consumer associations recognise a need to act at EU level and favour full harmonisation provided that a high level of consumer protection is guaranteed. Consumer associations support a broad definition of digital content, not precluding future technological developments.

Given that digital content is increasingly provided against users' data or other counter-performance, all kinds of counter-performances should be covered. The content should be as comprehensive as possible, including conformity criteria, remedies and the exercise of such remedies.

The vast majority of consumers associations support a mixture of subjective and objective conformity criteria. Remedies applicable to digital content should be as consistent as possible with those on tangible goods and differentiations should only be madebecause of the speicificities of digital content. Consumer associations support the inclusion of a right to damages, where damage has been done to the digital content and hardware of the consumer. On the legal guarantee period the majority of them advocate for a long or indefinite period, but would also support the introduction of a reasonable time limit that, however, should not be shorter than the one for goods (2 years). On the burden of proof, consumer representatives argue that traders should have to prove that a defect did not exist, since it is difficult for consumers to prove the cause of a defect.

Traders should be able to modify the features of the supplied digital content, provided that this is foreseen in the contract and that consumers have the right to terminate the contract at no cost. Users should have the right to terminate long term contacts by prior notice, provided that this is not subject to formal requirements that would limit the exercise of the right to terminate. After termination of the contract, the supplier should refrain from continuing to process the consumer's personal data. Consumers should be able to retrieve their data within a reasonable time, without inconvenience and in a commonly used format to avoid lock-in effects caused by possible lack of interoperability between different suppliers’ platforms.

Business The majority of respondents from the business' side confirm that there is a need for action at EU level, given that some Member States have already put in place legislative initiatives and more are likely to follow, which could lead to fragmentation. IT associations are divided: while according to some there is no evidence that consumer and contract law variations are an important obstacle to cross-border trade, others state that "action at EU level, rather than national level, is critical". Businesses would in principle support a full, targeted harmonisation. The main SMEs umbrella association agrees that a new harmonised European legislation could increase the protection of consumers when buying digital content, and suggests the initiative should cover all aspects of the contractual relationship. Retail associations consider that the legal void only regards remedies and guarantees. IT associations are divided on the options: while some would prefer the home option, others would support full harmonisation or no action. With the exception of the main SMEs association, which supported the extension of rules on digital content to B2B transactions, all businesses associations argued that the current proposal should cover only B2C contracts.

A vast majority of the businesses call for a technology- and future-proof broad definition of digital content. In particular, they argue that having a narrow definition would fragment the market and not be in line with the evolution of a market where interplay between different types of services is more and more frequent. However, representatives of companies active in the development of digital content express the need to differentiate between categories of digital content. Some asked that the proposal shall not deal with digital services such as storage and sharing services as well as services processing data and user generated content.

On the counter-performance other than money businesses are divided: while some are against such an extension and advise against overlaps with data protection rules, others would favour such an inclusion.

The majority support a mixture of objective and subjective conformity criteria. As to remedies, they underline that suppliers of digital content should have the choice to bring the goods into conformity before giving the possibility to the consumer to terminate the contract. For some IT associations, consumers should only have a right to terminate the contract and to receive a reimbursement of the price, but not the right to request that the content is brought into conformity, as this may be too costly for traders. Other IT associations do not consider remedies for non- conformity to be appropriate at all for digital content. The vast majority state that a right to damages should not be included in the proposal. On the burden of proof, for some general businesses associations, SMEs and IT associations, non-conformity should be proven by the consumer, for other associations there should be a reversal of the burden of proof for a period that varies from two to six months. They are almost unanimously against an indefinite shift of the burden of proof but would prefer a reasonable period.

The vast majority of businesses organisations want traders to be able to modify the features of the digital content, in order to keep up with technological and market developments. Many among them support that this possibility should be foreseen in the contract, that the consumers should be informed about the modification and should have the right to terminate the contract.

According to the majority of businesses users should have the right to terminate long term contracts, upon prior notification to the trader. Representatives of the digital technology industry seem reluctant towards the right to terminate a contract where benefits (such as discounts or additional features) were provided to the consumer for a certain period of time.

Many business associations would support a general consumer right to retrieve their data. However, the majority of them raise the issue of possible overlaps with data protection rules, while one association argues that such a right should be restricted to user generated content provided by the consumer in social media services/platforms. Some IT associations and companies are not in favour of a right to retrieve or transfer user-generated content.

Member States: The majority of Member States support harmonised EU rules for online sales of digital content. Some of them specified they would prefer full harmonisation or targeted, full harmonisation. As a main trend they believe it is very important to have similar rules regardless of whether the contract concerns digital content or tangible goods . Others would like to see the results of the fitness check of existing EU legislation (REFIT) and the report on the application of the Consumer Rights Directive feeding into the new rules. Some Member States would rather prefer a better application and an assessment of existing rules. In case a new legislative initiative will be discussed, a Member State belonging to this group would be open to support full, targeted harmonisation, if there is no differentiation between digital content and digital content on a tangible medium. Almost all Member States expressed the need for consistency between rules for online and offline sales . In addition to supporting harmonisation, two Member States would be open to a voluntary model contract provided that the stakeholders agree on its content.

With the exception of a Member State that would be open to consider B2B contracts in the cloud computing area, all respondents would prefer the inclusion of only B2C contracts.

The vast majority of Member States would favour a broad definition of digital content, given that digital content is in continuous evolution. According to three Member States certain digital content in particular digital services or telecommunication and software accessed online should not be included, while digital content downloaded/saved on the consumer's computer should be included. One Member State specified that the scope should not be defined by a list of digital content categories to be included given that digital content is in continuous evolution..

On the inclusion of counter-performances other than money four Member States would not be in favour. All the others agree or in three cases are at least open for discussion. According to one Member State different liability and warranty standards should apply, if appropriate, depending on the type of counter-performance.

Member States are almost unanimous in supporting a mixture of subjective and objective conformity criteria. Several Member States maintain that the trader should have the burden of proof while a number of them affirm that the burden of proof should be on the consumer.

Almost all Member States would support the inclusion of all remedies already available for tangible goods, in particular repair and replacement, price reduction and termination of the contract. Three of them express a preference for a hierarchy of remedies while one Member State believes consumers should be free to choose the preferred remedy. A number of Member States are in favour of granting the same remedies in case of counter-performances other than money. One Member State explicitly opposed that option.

Several Member States would sustain a single time limit in accordance with the Consumer Rights Directive while a couple of them would prefer two time limits, one for the legal guarantee period and one for the prescription period.

On damages Member States are divided: a number of them would be in favour of including a right to damages while for the others this issue should be left to national legislations or are open for discussion.

Several Member States maintain that the trader should have the burden of proof while a number of them affirm that the burden of proof should be on the consumer but a reversal of this burden should be provided for a certain period after the supply of the digital content, ranging from six months for two Member States to two years for one Member State.

The majority of Member States believe consumers should be able to terminate long term contracts and to retrieve their data. Two of them specified that consumers should only be able to retrieve user generated content. One Member State would not support the inclusion of the right to terminate the contract because digital content cannot be returned in any meaningful way and is easily copied.

Those Member States answering this question agree on the possibility for the trader to make modifications to the digital content provided that this is not detrimental to the user, but their answers are heterogeneous when it comes to deciding on which basis this possibility should be granted.

Legal professions:  Half of legal profession associations (lawyers, notaries) are in favour of harmonised EU rules, while others consider that the EU consumer acquis is sufficient or that voluntary model contracts could be an alternative. Half of the respondents suggest that the new contract rules could apply to SMEs as well, but at a lower level of protection than for consumers. A large majority consider that the scope should include monetary transactions and other types of counter-performance (data), as well as a wide area of rules. They call for a mixture of subjective and objective criteria for conformity. Users should be granted a large choice of remedies, also for non-monetary counter-performance. On the guarantee period a majority of respondents are in favour of a 2 year period, one respondent proposes a 3 year period. They broadly consider that the right to damages is a matter for national law. They generally recognise a right to terminate long-term contracts to consumers under user-friendly conditions. They do not object to "reasonable" modifications of the contract by the trader, and would accept technical protection measures taken by traders after termination of the contract, to avoid further use of the digital content by the consumer.

Tangible Goods

Consumer associations: There is a general recognition that harmonisation may improve cross border e-commerce since it has the potential to boost clarity for both consumers and traders. The main consumer umbrella association would support full harmonisation as long as a high level of consumer protection is ensured and existing consumer protection levels across Member States are not reduced. They also raised the issue that possibly diverging rules for online and offline transactions would be problematic, and could only be justified with the creation of a truly high level of consumer protection for online purchases. Consumer associations strongly oppose any form of the application of the trader's law and do not support the inclusion of B2B contracts.

The vast majority of consumers associations support a free choice of remedies and rejected the inclusion of a notification duty, arguing that consumers would be likely to be unjustly deprived of their remedies. On the reversal of the burden of proof they advocate for a period longer than 6 months (mainly 2 years). Practically all of them are in favour of a longer legal guarantee period (many propose 6 years), especially for durable goods, and oppose any harmonisation of prescription periods. Almost none of the associations support the inclusion of rules on damages in the proposal.

Business: Businesses are in general in favour of an action at EU level: the majority would want full harmonisation of European contract law on the B2C sale of tangible goods. Others specify that targeted full harmonisation would not eliminate all differences, since there would be harmonised rules and other rules. Other associations and companies are doubtful about the need to take any action, but if there is some action at EU-level they would want the application of the trader's law and a modification of the Rome I Regulation. Some retail associations support full harmonisation while recommending avoiding as much as possible a sectorial approach (online/offline; tangible/intangible). The main SMEs umbrella organisation suggests that the home option and an adaptation of Rome I Regulation could boost cross border ecommerce. However, they do not exclude harmonisation and would eventually even support it if there are no problems of fragmentation. Some IT industry associations also support the home option and the adaptation of the Rome I Regulation. They consider that consumers are sufficiently protected at EU level. One of their main arguments is related to the fact that they believe that even fully harmonised rules may be applied differently in the Member States.

Businesses are practically unanimous in supporting the inclusion of only B2C contracts.

On conformity the vast majority of respondents agree on the balanced approached between objective and subjective criteria provided by Art. 2 of the Consumer Sales and Guarantees Directive.

Respondents from the business side argue practically unanimously in favour of a hierarchy of consumer remedies across the EU, along the lines of the current Consumer Sales and Guarantees Directive. Some of them added that the consumer should have the right to repair as the first remedy but the trader should have the right to propose a price reduction or refund instead. They all support the need for a notification duty, with some of them arguing that a lack of notification could impair the ability of the trader to adequately repair or replace a defective product, and for maintaining the current 6-month reversal of burden of proof period.

The majority of businesses support full harmonisation of the current 2-year legal guarantee period, which has worked well in practice in many Member States. In general they are not in favour of the inclusion of rules on damages. The majority of businesses would not want uniform EU rules on the content and form of commercial guarantees.

On unfair contract terms businesses are divided: while some of them would welcome fully harmonised rules, others consider the minimum harmonisation currently in place as sufficient or consider the home option a better solution. One main business association advocated for a fully harmonised blacklist and grey list of unfair terms. On grey lists the respondents are almost unanimous in not supporting their inclusion in the proposal. An IT association would be open to a harmonised grey list accompanied by guidance as to what will save such provisions in the grey list from being ultimately deemed unfair (saving parameters).

Member States: Some Member States would support EU harmonised rules, but are cautious about political feasibility and the differentiation between online and offline sales rules. Others would prefer a better implementation, enforcement and evaluation of existing legislation before producing new legislation. A number of Member States are strongly against any form of the application of the trader's law and a re-opening of the Rome I Regulation. Few Member States would be open to the home option or to the voluntary model contract provided that its content is agreed with the stakeholders.

With the exception of a couple of Member States that are open to including B2B contracts, all the other respondents support the inclusion of only B2C contracts.

On the content of the proposal, the vast majority of respondents believe the current combination of subjective and objective conformity criteria provided for in the Sales Directive is appropriate. One Member State would be in favour of a durability criterion.

Three Member States would support maintaining the existing rules of a six month period for the reversal of the burden of proof, while another would want to extend the reversal period to two years. A Member State maintains that the burden of proof should be on traders, with the exclusion of SMEs.

On remedies respondents are divided: while some of them are in favour of a hierarchy of remedies, others would support a free choice of remedies by the consumer. The majority of them agree that all contract law areas covered by the Sales and Guarantees Directive should be included.

A group of Member States would not support the inclusion of a right to damages. Others agree this right should be based on the trader's fault and some of those specify his liability should be objective. Some Member States would not agree to include commercial guarantees in the proposal. Five Member States would be in favour of such an inclusion.

On time limits, a group of Member States among those which answer to this question would support existing rules. Others believe limitations periods are a matter of national law.

A number of Member States would not be in favour of including unfair contract terms in the proposal, as the existing rules seem appropriate. Three Member States would be in principle open to their inclusion, provided that the list is not exhaustive and does not undermine national legislation. A Member State advocates harmonised rules.

Legal professions: The large majority of legal professions' associations which responded see a need for harmonised EU rules, two associations would support model contracts applicable to digital content and tangible goods and one association is in favour of complementing the existing minimum harmonisation regime. While half of respondents put the focus on B2C transactions, a large majority consider that the same regime could apply to both B2C and B2B, except some rules on standard terms in the latter case. For B2B one respondent also refers to the UN Convention on contracts for international sale of goods (CISG) which applies in many Member States. Half of respondents are in favour of a large scope of rules to be harmonised. A large majority are satisfied with the existing conformity criteria laid down in the Sales and Guarantees Directive. The majority approves the current 6 month period for the reversal of burden of proof. A majority is in favour of a free choice of consumer remedies, while some respondents prefer to keep a hierarchy of remedies, possibly negotiable between the parties. A majority support two different time limits for the notification of defects and the exercise of remedies. The later should be 2 years; however two respondents suggest a 1 year period for second-hand goods. A majority consider that the buyer must notify the defect within a certain period of time after discovery; one respondent proposes a 3 month period, another respondent suggests "a relatively generous notification period", another one argues that it is a matter for national law. A majority is against regulating commercial guarantees. Half of respondents are in favour of laying down "black" and "grey" lists of unfair terms on the basis of the current Directive.

The detailed responses to the public consultation will be published on the Commission website upon adoption of the Proposal. 193

Since the publication of the Digital Single Market Strategy on 5 May 2015 194 press material and intensive communication activities have been undertaken to present the holistic approach adopted by the Commission to boost the Digital Single Market. The main initiatives, in particular, the current initiative on digital contracts have been presented in the European Parliament and to main stakeholders.

Specific consultations targeting main stakeholders

The Stakeholder Consultation Group for consumer rules for online and Digital Purchases ("Stakeholder Consultation Group") was set up at the beginning of 2015 and is composed of 22 organisations representing a wide range of interests from consumers to SMEs, retailers, e-commerce operators, online platform, manufacturers, legal professions, marketing professional and content developers and providers. Meetings of the Group were also attended on an ad hoc basis by representatives from national consumer organisations, academia, European Consumer Centres and businesses. The Stakeholder Consultation Group was tasked to assist the Commission in identifying the problematic areas to tackle the contract law obstacles related to the online purchases of digital content and tangible goods and to discuss possible solutions. The group met 7 times from January to October 2015.

Main trends of the discussion

The Stakeholder Consultation Group identified amongst other the lack of harmonisation of consumer contract law rules as one of the main obstacles for the development of the Digital Single Market. Businesses, in particular SMEs, consider consumer contract law rules as an obstacle to expand their online business cross-border. Consumers underlined the existing gaps in EU consumer rights in case of faulty digital content. The Group emphasised the need to have the same rules for online and offline sales of tangible goods as traders use omni-channel distribution. On the scope of the proposal, stakeholders stressed that it should apply to cross-border and domestic transactions. A large majority of the Group members also highlighted that business-to-business contracts and business-to-consumers (B2C) contracts should not be treated in the same way and that the focus of this initiative should remain firmly on B2C.

For digital content, the Group agreed that any future initiative should include a definition of digital content which is consistent with the consumer EU "acquis", content neutral and future-proof. The new rules for digital content should provide a mixture of subjective and objective conformity criteria and remedies in case of non-conformity. While businesses highlighted that traders should have the possibility to repair or replace before giving the possibility to the consumer to withdraw from the contract, consumer representatives argued that consumers should have a free choice of remedies. Businesses saw no need to regulate damages. Consumer representatives were supportive of having clear rules concerning damages caused to the consumer’s hardware and software because of the malfunctioning of the digital content. There seems to be some consensus to include free digital content provided against another counter performance than money (such as personal data) in the scope of the proposal, provided that it does not overlap with data protection rules.

For tangible goods, the current approach to assess the conformity of tangible goods as foreseen in the Directive on Consumer Sales and Guarantees was considered as being still appropriate. However, stakeholders expressed diverging opinions on the need to add conformity criteria beyond the Consumer Sales and Guarantee Directive. On the reversal of burden of proof on the consumer, business associations stick to the current 6-month period, whilst consumer representatives advocate for a minimum of 2 years. Finally stakeholders showed little support for harmonising rules on damages, prescription periods and unfair terms.

The work of the Group, the minutes of the meetings and a report on its activity, as well as its members are made public on the Commission's Registry of Expert Groups. 195

Workshops with Member States: Three workshops with Member States were organised. At the first workshop (June 5, 2015) the discussion focussed on the general approach that should be adopted by the Commission for this new initiative and key contract law issues regarding digital content. The second workshop (July 6, 2015) was devoted to discuss issues related to the online sales of tangible goods. The third workshop (6 October, 2015) was devoted to discuss in more detailed the draft rules that Commission services are considering. The relevant issues were also discussed with national enforcement authorities at the Consumer Protection Cooperation committee meeting (April 28, 2015) and the national authorities responsible for consumer policy at the Consumer Policy Network meeting (May 5-6, 2015)

Bilateral meetings were held with some Member States. In-depth technical discussions have been held with the British and Dutch authorities on their recently adopted legislation on digital content and with the Irish Authorities which have started preparatory work for legislation on digital content. Bilateral technical meetings have also been held with the German, the Polish, the French, the Austrian, the Slovak and the Italian authorities.

The Digital Single Market Sub-Group of the European Consumer Consultative Group (ECCG) composed of 12 representatives of national consumer organisations has produced recommendations on how to tackle contract law obstacles related to the online purchases of digital content and tangible goods. The Group recommend in particular a revision of the Sales and Guarantee Directive as well as of the Unfair Terms Directive, insist on better enforcement of legislation and consider that there should not be two different regimes for online and offline transactions.

A specific business consultation was conducted from June to August 2015 in order to gather data on contract law related costs faced by business when selling abroad. Following the circulation via industry umbrella organisations of a detailed questionnaire on resources allocated by companies for compliance with consumer contract law rules, the Commission followed up with in-depth interviews. Six businesses were selected from five different Member States (Belgium, Denmark, Luxembourg, Sweden and the United Kingdom), with different business approaches towards cross-border e-commerce. Five out of the six businesses were SMEs. Some have a longstanding experience in cross-border e-commerce, some have stopped selling across borders due to the problems they faced and others are now envisaging starting to sell across borders.

Consumers and businesses surveys

Consumers were directly consulted through surveys carried out by the Commission. Within the framework of the Digital Single Market Strategy 196 , two surveys were carried out in 2015 to identify the main cross-border obstacles to the Digital single market":

-    A consumer survey carried out in all 28 Member States. More than 23 000 respondents were asked about their online purchasing activity in each Member State and cross-border, both for tangible goods and digital content, as well as in Norway and Iceland. Consumers were also interviewed on their perceptions and behavioural motivations that drive or impede cross-border and domestic online purchasing activity on the internet 197 In order to ensure the socio-demographic representativeness of respondents, a sample was drawn at random from the online population using existing online panels. Survey data was weighted post-fieldwork in order to reflect the online population per country as accurately as possible. Specifically, the age and gender distribution weighting targets were based on two types of Eurostat data: 1. the general EU population aged 18 to 74; and 2. the proportion of the general population aged 18 to 74 who had used the internet in the past 12 months. To report on EU28 total data, the sample was further weighted by the size of each Member State’s online user population aged 18 to 74.

-    A business survey carried out in 26 Member States. 8 705 respondents were asked about their online selling and purchasing activity, both domestically and cross-border, their experiences with cross-border selling and purchasing, the problems they encounter and the main reasons for not-selling cross-border online. 198  

As part of an economic study on consumer digital content products, 1 000 consumers in each of 15 Member States were asked about the type of problems they have encountered when purchasing digital content. Businesses were also directly consulted by means of a series of 20-30 business interviews conducted in each of the 15 selected Member States. Individual businesses including SMEs were asked to identify the main problems they face when selling/providing digital content to consumers, domestically and cross-border. 199

2. Assessment of the consultation strategy/process

The consultation process reached different categories of stakeholders from all Member States. Inputs given by stakeholders were almost always in line with the objective of the consultation, with very few replies unrelated to the consultation topic. Contributors with high interest in the proposal were actively involved and gave a useful, broad perspective of the market in which they operate and their needs. Sectorial associations, whose members are mostly SMEs, also gave valuable and specific inputs through the public consultation. The number of contributions from individual consumers to the public consultation was relatively low; this could be explained by the technical nature of the topic. However, several consumer associations at European and national levels as well as public authorities in contact with consumers on a daily basis, like the national consumer centres and national ombudsmen, provided useful inputs on the difficulties consumers face when buying online.

Overall, stakeholders, especially businesses and consumers, expressed rather conflicting views. Therefore, the preferred policy option can necessarily not take into account all positions expressed. However, this broad spectrum of views helped to convey the comprehensiveness and the complexity of the interests at stake.

Annex 3 - Who is affected by the initiative and how

The initiative will achieve on certain issues uniform contract law rules at EU level for the supply of digital content and will further harmonise key mandatory EU contractual rights for online sales of tangible goods.

Practical implications of the initiative for businesses

The initiative only regulates the relations between businesses and consumers. It does not contain regulatory obligations for businesses relating, for example, to information, reporting, organisational or administrative requirements, and thus, does not create additional costs related thereto.

The practical implications for all businesses are the obligation to adapt their contracts to the new rules and the concrete consequences of the application of the new rules to their contracts with consumers.

Obligation to adapt contracts to the new rules

As the EU rules will be fully harmonised, all businesses selling tangible goods online (currently estimated between 916,000 and 1,221,000 businesses in the EU) and/or selling digital content (currently estimated between 196,000 and 261,000 businesses in the EU) 200 will be obliged to adjust their contracts to the new rules once the instrument is implemented at national level. Businesses currently selling tangible goods only offline will not have to incur any adaptation costs.

Each business selling tangible goods online and/or digital content will have to bear one-off costs to adjust their contract to the new legislation, including costs to possibly seek legal advice, adapt terms and conditions etc. This one-off cost would amount to approximately €6,800, as largely confirmed by a recent UK study, according to which this amount is the average cost for businesses to adapt their terms and conditions to new legislation 201 . Having implemented this adjustment, businesses will not have to adapt their contract terms to the laws of other Member States, no matter how many Member States they sell to. Businesses selling tangible goods online would thus save approximately €9,000 202  for each new country of export. For instance the cost savings for exporting to 7 countries could reach €63,000.

For businesses selling digital content, these one-off adaptation costs will enable them to sell to consumers in all EU Member States, without having to face additional contract law related costs in future that they might otherwise incur due to emerging divergent national legislations.

Focus on SMEs

The current contract law related costs of 9,000 to export to each additional Member State have a stronger impact on micro and small enterprises with a smaller turnover. For instance, as shown in the table below, the decision of a micro enterprise to export to 4 Member States would currently entail contract law-related costs of approximately €36,000 and thereby surpass 10% of the company's annual turnover.

Contract law-related costs as percent of corresponding turnover for businesses exporting to other Member States

Source: Eurostat Structural Business Statistics 2012, SME Panel Survey

After the introduction of EU-wide fully harmonised rules, SMEs currently selling online will have to incur the costs to adjust their contracts to the new legislation. In fact, given that the vast majority of businesses are SMEs, about 98% of the one-off adaptation costs for companies selling goods online and about 99% 203 of the adaptation costs for businesses supplying digital content will be incurred by SMEs. SMEs currently selling tangible goods only offline will not have to incur any adaptation costs. As all other businesses, SMEs selling both online and offline are in practice not likely to be faced with any significant costs due to different regimes for their online and offline sales, and may choose to apply the same standards to all their sales and thus operate under a single business model 204 .

While the one-off adaptation costs have a stronger impact on SMEs, the possible economies of scale have also a stronger positive effect on them. Indeed, the initiative will particularly be beneficial to SMEs. SMEs are often confined to a small home market with high production and development costs. Foreign trade is an important way for them to benefit from the advantages of economies of scale. The most pressing problem SMEs in the EU face is finding customers. 205 This problem would be easier to cope with in the online context, since the internet enables online sales and purchases at reduced operational costs compared to offline trade. As the proposal will reduce e-commerce costs stemming from divergent contract law rules, it should help - together with other initiatives under the Digital Single Market Strategy - SMEs to achieve growth through exports and economies of scale that cannot be achieved from the domestic market alone.

That is why exempting SMEs and in particular micro-enterprises from the new legislation would deprive them of the cost saving benefits of the proposal. In addition, an exemption would decrease consumers' trust when purchasing from SMEs or micro-enterprises. It could not be justified to the consumer, as the other contractual party, why possibly – compared to a bigger supplier - less protective consumer contract law rules apply when the consumer concludes a contract with a SME. It would undermine the benefits for businesses, and in particular SMEs and micro-enterprises, of having one single set of rules applying throughout the EU. The consultations with SMEs and organisations representing SMEs, confirmed the benefit of uniform rules. In particular, the umbrella association representing SMEs at EU level highlights that diverging rules are negative for small businesses. 206

Consequences of the application of the new rules to contracts with consumers

For the online sale of tangible goods, the initiative will entail a certain number of obligations for businesses in their relations with consumers 207 . However, many of these obligations are already included in national laws, to different degrees and extent, as a result of EU minimum harmonisation legislation. The impact of the obligations set in the initiative will thus depend on the extent to which current national legislation goes beyond the minimum requirements set in the current EU legislation. For example, the initiative foresees that consumers will not need to notify defects to sellers within a certain period of time. Therefore, businesses located in the 17 Member States where consumers have currently such an obligation will be more affected than those businesses located in the 11 Member States where no such obligation exists. 208  

As regards the prolongation of the period for the shift of the burden of proof from 6 months to two years, this will align the reversal of the burden of proof to the guarantee period. The alignment will simplify the remedies regime and allow consumers to exercise their right effectively for the entire length of the guarantee period. The extension is not expected to have a very significant impact on businesses, since recent data show that in practice only a minority of businesses insist on consumers proving the trader's liability within the entire 2 year legal guarantee period, and there is very limited change in traders’ behaviour before or after the 6 months on this point.  209 Therefore the reversal of the burden of proof often operates de facto throughout the entire 2-year legal guarantee period, and the proposed extension is not likely to impose very significant additional costs to businesses.

In addition, the obligations concerning remedies will not impose costs on all businesses but only on those that supply faulty products to their customers. This advantages businesses which supply high-quality products over those which provide consumers with a poorer service.

Unlike for goods, not all Member States have mandatory contract rules for the sale of digital content. The initiative will thus overall create essentially new obligations, such as supplying digital content in line with contractual and/or statutory criteria, offering remedies for faulty digital content, informing consumers about the modification of the contract or granting the possibility for the consumer to terminate long-term contracts. 210  However, as is also the case for tangible goods, the obligations concerning remedies will only impose costs on businesses that supply faulty products to their customers.

Rules on offline and online sales of tangible goods

Although there is a possibility that for a transitional period the rules on online and offline sales of tangible goods may differ, this will in practice be rather limited. The Commission will take the necessary steps to ensure coherence with the Regulatory Fitness and Performance (REFIT) Programme, which will determine any possible need for an initiative on the offline sales of tangible goods. If such differences were to actually occur for a short transitional period, it is acknowledged that they could affect businesses selling both online and offline, since the latter would have to comply with two different sets of rules according to their sales channel. Businesses also selling cross-border would not be negatively affected, since any additional costs arising from a potential divergence of regimes in their domestic market would be counterbalanced by the significant cost savings resulting from not having to adapt to other Member States' national consumer contract laws when selling online cross-border. Therefore, any possible negative effects would only concern those businesses that currently sell and will continue to sell both online and offline but only domestically.

The main difference between the current national implementation laws in most (26) Member States will concern the extension of period for the reversal of burden to 2 years. The rules on the consumer's notification duty will change in 17 Member States, while those on the hierarchy of remedies will change in 6 Member States. Finally, for the length of the legal guarantee period, the current national legislation will change only in 5 Member States. In practice, the possibility that these differences will lead to a divergence of applicable regimes for online and offline domestic sales to consumers is limited, and its possible consequences could be dealt with by business practices.

In the 26 211 Member States where there might be a transitional divergence on the burden of proof rules for online and offline sales, this would not make a significant difference in practice: recent data show that only a minority of businesses insist on consumers proving the trader's liability within the entire 2 years legal guarantee period, and there is very limited change in traders’ behaviour before or after the 6 months on this point. Therefore, the shift of the burden of proof often operates de facto throughout the entire 2-year legal guarantee period, and thus the practical impact on businesses of possibly temporarily divergent rules on this point would not be significant.

As far as the consumer's duty to notify a defect is concerned, the possible differences in 17 Member States 212  between the offline and online regimes are in reality not likely to affect actual business models, since according to recent data consumers mostly react promptly when a problem occurs with the purchased product, regardless of the rules on notification. Depending on the type of product, between 62% and 90% of problems are followed up either immediately or within one week after the problem occurs.

In 6 Member States 213 there may be a difference in the existence or not of a hierarchy of remedies for consumers, and in 5 other Member States 214 a difference as regards the legal guarantee period for offline and online sales may temporarily occur. This would in practice encourage businesses to promote their online activity, since for their online sales within the former 6 Member States businesses would first be able to offer repair or replacement of a defective product before being obliged to accept a price reduction or to reimburse the consumer, while businesses in the latter 5 Member States would be liable for defects of goods sold online for a shorter period of time (compared to their offline sales).

Given the limited practical impacts of such temporary divergences, omni-channel businesses could cope with possible, transitional differences between the regimes for online and offline sales of tangible goods by applying the respective higher standards, which would enable them to use a single business model and thus save any potential additional costs. For example, in the respective Member States where differences may occur, businesses could in practice choose to offer their customers the possibility of a free choice of remedies or a longer legal guarantee period also for their online sales, if they consider that in this way they could become more competitive and attract more customers. Likewise, in the respective Member States businesses could also not require consumers to notify a defect or could apply (as is already often the case) the reversal of the burden of proof period for two years even for their offline sales.

Practical implications of the initiative for public administrations

Except for the obligation to transpose the Directives into national law and enforce them, there are no specific practical implications for public administrations and courts. Uniform contract law rules on faulty products in the EU will facilitate enforcement by Member States and, in particular, cross-border joint enforcement actions undertaken by the Consumer Protection Co-operation (CPC) network.

Practical implications of the initiative for consumers

The initiative will not create any obligations for consumers.

For the online sale of tangible goods, the consumer protection level will be increased compared to the existing EU level of protection. This applies in particular to the extension of the reversal of the burden of proof to two years and its alignment with the legal guarantee period. Compared to their national standards, all EU consumers will benefit on this point from a higher level of consumer protection (except in the case of two Member States 215  where they will have the same level. This higher level of consumer protection will facilitate consumers exercising their rights and is expected to significantly boost consumers' trust which is particularly relevant given the distance-related character of (cross-border) online sales. In addition, not only consumers will have a wider choice of products, since they will have access to offers from traders across the EU, at competitive prices, but will also likely benefit from higher quality and more durable products, in line with European Commission's Circular Economy Package. When comparing the level of consumer protection on other points with national standards, again the result will depend on the extent to which current national legislation goes beyond the minimum requirements set in the current EU legislation. In many cases it will be higher, on some specific points it may be lower.

As mentioned above, a differentiation between the key rules on offline and online purchases is not likely to occur in practice. However, if this were to actually happen, it is not expected to have a significant impact on consumers: on the contrary, the more protective rules on the burden of proof (in 26 Member States) 216 and the notification duty (in 17 Member States) would boost online purchases, both domestically but most importantly cross-border, and would thus contribute to increasing consumer confidence and welfare. There may however be a negative impact in 6 Member States resulting from the possible temporary co-existence of a free choice of remedies for offline purchases and a hierarchy of remedies for online purchases, since such a situation would not contribute to boosting consumers' confidence in buying online. However, this may be to some extent counterbalanced by other elements of the proposal which facilitate the right of consumers to terminate the contract, such as the right to terminate the contract for the online purchase of goods also for minor defects 217 . A similar impact could also be expected in the 5 Member States where a difference in the legal guarantee period may occur between offline and online purchases.

For the sale of digital content, consumers will have clear rights when they access digital content from anywhere in the EU. This will increase their confidence in buying/accessing such products both domestically and cross-border. This will contribute to reducing the financial and non-financial detriment currently suffered by consumers with respect to digital content, since there will be a set of clear rights that will enable consumers to address problems they may experience with digital content.

ANNEX 4 – Macro-Economic impact of removing contract-law related obstacles to the digital single market

This annex summarises the analytical work carried out by the Commission’s Joint Research Centre (JRC) to estimate the macro-economic impacts that are expected to result from the removal of contract law-related barriers to cross-border e-commerce 218 .

The analysis has two stages. In the first stage, data from surveys of consumers and businesses are used to estimate the impact of perceived obstacles to e-commerce on the volume of cross-border e-commerce in the EU. In the second stage, the estimated impact on the volume of cross-border e-commerce is applied to a macroeconomic model, which develops the potential macroeconomic impact of policy measures to remove the identified barriers.

Stage 1: Identifying barriers to cross-border online e-commerce

To gauge the importance of obstacles to online trade, the European Commission launched two surveys in early 2015, the first addressing the barriers faced by consumers and the second the barriers for businesses. Descriptive statistics have been drawn from the results.  219

Consumers and retailers were asked whether their cross-border purchases and sales are affected by a list of potential obstacles. The extent of cross-border transactions by consumers and retailers was also examined. By combining these two sets of variables, estimates were obtained of the actual quantitative impact of the perceived barriers on cross-border purchases and sales. In addition, these data were used to demonstrate the expected increase in cross-border trade if the barriers mentioned in the surveys were eliminated, for instance by means of legal and regulatory changes to consumer contract law. 220  

For the purposes of this impact assessment, the data concerning specific perceived barriers have been grouped into categories that correspond to the proposed legal changes (see Table 1) for online consumers and retailers. In a second stage, the estimated quantitative impact of the groups of barriers that produced statistically significant coefficients is applied to a macro-economic model as an exogenous policy shock, and the model simulates the resulting overall economic impact.

Barriers to cross-border online purchases by consumers

A consumer’s decision to buy online abroad or not is estimated by means of a logit regression 221 where the dependent variable is a dummy that takes the value 1 when the consumer data show that a respondent has purchased cross-border online within the last 12 months and 0 otherwise 222 . The independent variables include dummies for each of the 17 potential barriers listed in the survey. The logit regression then calculates the impact of each of these potential barriers on the number of consumers that buy online abroad.

For the amount spent online abroad an Ordinary Least Squares (OLS) 223 regression was used, where the dependent variable is the amount spent on online purchases cross-border from other EU countries. In both regressions the dependent variable is originally regressed on each of the 17 potential barriers to online cross-border consumption. As an alternative approach, a Principal Component Analysis (PCA) 224 was applied prior to the regression on the 17 barriers. The regression was then carried out on the 5 components emerging from the PCA. Table 1 summarises and identifies the statistically significant results for the regressions by individual barrier items and by PCA items. From the consumer data, 8 of the 17 barriers were selected and pre-categorised into 3 groups that are considered to be barriers that would be eliminated by the proposal that this impact assessment supports. Statistically significant coefficients are obtained for “Conformity with the contract 225 ” in the original “by-item” regression. The PCA regression finds significant results for “Consumer Rights”. 226

To introduce these estimations into the macroeconomic model, the two impacts – the change in the number of consumers that buy online abroad, and the change in the amount spent on online purchases from other EU countries – is combined in a single figure. As for the “Conformity with the contract” cluster, lifting the barrier “wrong products” would increase the number of consumers who buy cross-border by 5.3 percentage points, on top of the 50.09% who already do cross-border purchases, so an increase by 10.5% in relative terms.  227 Lifting the barrier “products not delivered” would increase the volume of cross-border purchases by 13.6% for all those who buy cross-border which would correspond to a rough estimate of 40 euros per person) 228 . The combination of these effects leads to a total increase of 25.6% 229 , a very large jump in cross-border trade for a single policy measure. This is based on the implicit assumption that an additional consumer who starts doing cross-border purchases when a barrier is eliminated will spend as much cross-border as consumers who have been doing this for a longer time. A more conservative assumption would be that new cross-border consumers spend less on cross-border purchases. For example, assuming that new cross-border consumers spend 50% of the average of existing cross-border consumers, the increase in cross-border trade would be 18.1%. This creates two scenarios, an optimistic scenario (new buyers spend just as much as the existing ones) with a strong trade shock and a more conservative scenario (using the 50% assumption) with a lower trade shock.

Barriers to cross-border online sales by businesses

The data from the business survey were used to analyse the effects of the barriers on cross-border e-commerce between the different Member States. For that purpose, as is typically done in traditional international trade models, a two-step strategy was followed. First, the impact of the barriers on a business's decision to sell across the border was estimated. The decision is a binary variable, taking the value 1 if the business is selling online cross border and 0 otherwise. Due to the binary nature of the dependent variable, the appropriate estimation methodology is a logit or probit regression 230 model. The second step seeks to explain the impact of these perceived barriers on the volume of cross border e-commerce. Volume in this case is measured as the share of total cross-border e-commerce; hence it is a variable that can take any value in the interval [0-100]. A generalised linear regression model 231 suitable to deal with shares was used. While both regression models use the same explanatory variables, there should be differences in the coefficients between the two, because the determinants of the decision to sell online across the border and the volume of cross-border e-commerce should not necessarily be the same. In theory, e-commerce should bring trade costs down, in particular those related to transport (in terms of time), search costs, information costs, and distribution costs.

Data from the business survey included 17 different potential barriers to cross-border e-commerce that were reduced to 7 categories for the purpose of the regression analysis: cultural and linguistic barriers; suppliers’ restrictions; barriers related to delivery/payments; contract law related barriers; other regulatory barriers; redress; and infrastructure/interoperability barriers. The category “contract law” is relevant for this impact assessment. It is formed by two barriers reported in the survey: “guarantees and returns are too expensive” and “you don't know the rules which have to be followed”. The category variable takes the value 1 if a business declares that any of the two barriers is relevant and 0 otherwise.

The regression gives statistically significant results for the “contract law” category, both for the decision to sell online across the border and for the volume of online trade. The effective removal of contract-law related barriers would increase the number of businesses engaged in cross-border e-commerce by 5.3% percentage points, while the volume of online exports (measured in % of turnover) would increase by 3.1%. The combined effects sum up to an 8.4% increase in cross-border sales. The latter value is used as the policy shock to business barriers in the model simulation.

8Stage 2: The economic impact of removing remaining barriers

The above results demonstrate the expected increase in cross-border trade if the perceived barriers were to be eliminated by legal and regulatory changes. However, this expected quantitative impact is only a first-round direct effect and does not give a picture of the impact on various aspects of the economy. Accordingly, in the second stage of the analysis, these changes in trade volumes were introduced in a macroeconomic Computable General Equilibrium (CGE) Model with a view to estimating the main macroeconomic impacts of the removal of contract law-related barriers to online cross-border trade. In order to do that, the volume shocks mentioned earlier are converted into a trade cost reduction equivalent, using the model sector price elasticities. The model then calculates all the effects of the trade cost decrease on prices, household consumption, and GDP in all 28 EU Member States.

The overall macro-economic results are shown in Table 3. The table distinguishes between the two scenarios with full and partial implementation of the conformity shock, as explained in the previous section 232 . As Table 3 shows, these effects are very similar across EU Member States, though the order of magnitude may vary because of differences in the sector structure of GDP, the relative importance of external trade and the degree of competition in the domestic retail sector.

According to the more conservative partial implementation scenario, the removal of the barriers to cross-border e-commerce identified in stage 1 would push consumer prices down by 0.25% at EU level with country estimates ranging between -0.05% in Lithuania
and -0.35% in Spain  235 .

According to the same scenario, household consumption and Gross Domestic Product are projected to increase in all Member States. Household consumption would increase by 0.23% in real terms in the EU, which corresponds to around 18 billion euro; the largest projected increase would be observed in Spain (+0.38%), and the lowest one in Lithuania (+0.05%). Gross Domestic Product is projected to increase by 0.03% in real terms in the EU28, equivalent to around €4 billion. Slovenia is projected to experience the highest increase (+0.06%) and Romania the lowest (0.0%).

Finally, intra EU exports would increase by 0.04% in nominal terms (around 1 billion euros), with the highest increase seen in Slovakia (0.14%) and the lowest in Lithuania and Croatia (0.00%).

Table 1: Identification of barriers to cross-border e-commerce

Source: JRC/IPTS estimates based on DSM Consumer survey and Eurobarometer 413. For details see the references in footnote 3.

ANNEX 5 - calculation of contract law related costs for traders active in cross-border b2c ecommerce

The cumulative contract law related costs incurred by EU traders engaged in cross-border B2C trade due to differences in contract law rules can be calculated on the basis of the following elements:

Contract-law related costs incurred per company for entering the market of one Member State

Average number of EU countries European retailers sell to

Number of exporting EU retailers

Percentage of exporting businesses informed about foreign law

9Contract-law related costs per company for entering the market of one Member State

Contract law related costs are calculated based on the results of the responses gathered in the context of a SME Panel Survey. 236 Traders involved in B2C trade were asked to estimate the savings on costs for entering one Member State's market that would result from the application of uniform contract law rules across the EU. 62 traders indicated that these costs were lower than €5,000; 51 indicated these costs as being in the range of €5,000 - €10,000; 23 in the range of €10,000-€15,000; 11 in the range of €15,000-€30,000 and 11 estimated the costs to be higher than €30,000.

It should be noted that the above one-off contract law costs reported by the 2011 SME Panel Survey also reflect the current situation for businesses. The calculation of these costs only takes into account transaction costs (legal fees, research and translation of foreign legislation), excluding any IT costs (e.g. to adapt websites) assumed to be linked to a large extent to pre-contractual information requirements which were fully harmonised by the Consumer Rights Directive.

Table 1: Traders involved in B2C transactions – SME panel survey

Based on these responses, the average costs associated with B2C transactions have been calculated within a low and high estimate.

According to the low estimate, the average contract law related costs for firms involved in B2C transactions amount to €8,877. The costs are estimated at the average value of reported cost ranges (i.e. €2,500, €7,500, €12,500, €22,500). For the purpose of this low estimate, as regards the last range of costs (more than 30,000), the lowest figure of 30,000 is taken into account and leads to average costs of 8,876 per firm. 237

According to the high estimate, the average contract law related costs for firms involved in B2C transactions amount to €10,269. The costs are again estimated at the average value (i.e. €2,500, €7,500, €12,500, €22,500) of reported cost ranges. For the calculation of this high estimate, it is assumed that the costs reported at the last range (more than 30,000) are 50,000. This leads to average costs per firm of 10,268 238 .

These costs are calculated on the basis of the fourth column in Table 1, which covers all traders engaged in B2C transactions. Some of these traders however indicate that they are also involved in B2B transactions (Table 1, column 3). For this reason, the same calculation of costs (as described above) is repeated considering B2C transactions only. For traders involved only in B2C transactions (Table 1, column 2) these costs are within a similar range and amount to €8,696 - €9,565 239 . The latter range is used for the calculations in the report, as it is more conservative and may reflect better the costs for companies involved in B2C transactions.

10Average number of EU countries European retailers sell to

Recent data 240 provides information about the number of EU countries where retailers make cross-border sales (Question D2T). The sample consists of retailers that sell goods or services directly to final consumers and employ at least 10 people. For the following calculations, results were extracted for companies that sell cross-border and belong to the Eurostat NACE category 47 "Retail Trade", so as to exclude traders that do not sell cross—border or are active in other types of commercial activity (such as transport or telecommunications sectors). Therefore, Table 2 presents the results relevant for traders currently active in B2C cross-border retail trade.

Table 2: Number of EU countries where EU companies make cross-border sales to final consumers

Source: Flash Eurobarometer 396 (2015), "Retailers' attitudes towards cross-border trade and consumer protection".

On the basis of the above survey results, it can be estimated that EU traders involved in B2C cross-border e-commerce sell on average to 3.21 Member States 242 .

11Number of exporting retailers in the EU

According to the most recent available Eurostat data, the overall number of enterprises in the EU-28 active in retail trade is 3,627,167 243 . Within the retail trade sector, the percentage of EU-28 enterprises making e-sales to other EU countries is 8.1 %. 244 Based on these figures, the number of exporting EU retailers is 293,801 (3,627,167 * 8.1%).

12Percentage of exporting businesses informed about foreign law

Contract law related costs are the costs incurred by companies selling to consumers in other EU countries because of differences in existing contract law rules (e.g. costs for legal advice and translation of foreign laws). Realistically, however, not all exporters consult a lawyer or take other actions to become familiar with foreign laws. Flash Eurobarometer 321 (Q.1) 245 found that 18% of retailers currently involved in cross-border trade are not at all informed about the consumer protection provisions in the contract laws of the EU Member States where they sell or wish to sell to consumers, and another 32% are not well informed. On the opposite side, 8% said they are fully informed and 39% well informed.

Taking a conservative approach, this analysis will only take into account the 47% (8% + 39%) of retailers who said they are either fully or well informed of the foreign contract law provisions, since it is reasonable to assume that those who are not well or not at all informed have not incurred the costs of familiarising themselves with foreign law. Hence, only those 47% of B2C exporters are included in the computation of contract law related costs.

13Overall contract law related costs for EU businesses engaged in B2C e-commerce

Based on the above elements, the following formula can be applied to provide an estimate of the cumulative costs incurred by businesses active in B2C e-commerce:

(Contract-law related costs per company for entering the market of one Member State * Average number of EU countries European retailers sell to) * (Number of exporting retailers in the EU * Percentage of exporting businesses informed about foreign law)

According to the low estimate, the cumulative contract law related costs incurred by traders currently involved in B2C cross-border trade who are informed about the contract law rules of the EU countries where they sell amounts to €3.85 billion 246 . This calculation is based on the lower value of costs per trader (i.e. €8,696).

According to the high estimate, the cumulative contract law related costs incurred by traders currently involved in B2C cross-border trade who are informed about the contract law rules of the EU countries where they sell amount to €4.24 billion 247 . The calculation is based on the higher value of costs per company (i.e. €9,565)

Table 3: Overall contract law related costs for EU businesses engaged in B2C e-commerce

Therefore, the overall contract law related costs for EU business currently involved in B2C cross-border transactions range between €3.85 billion and €4.24 billion. 

Table 2: Macro-economic simulation scenarios

* Expected % increase in cross-border online trade when barriers are removed, except for underlined figures which refer to percentage points.

** Combined effect under a scenario where each new online cross-border consumer spends on average half as much as an existing cross-border consumer.

*** The component is based primarily on the first two items (“Returning a product”, and “Replacement or repair”)

Source: JRC/IPTS estimates based on responses to the DSM Consumer survey and Eurobarometer 413. For details see Cardona et al. (2015) and Duch-Brown and Martens (2015).

Table 4. Impacts on Household Consumption (% change) of removing demand and supply-side barriers to cross-border e-commerce